Will the February Employment Report Support the Current Market Narrative?
Feb job gains could surprise the market's view for a sharp MoM drop
The moment the market has been waiting for is upon us this morning - the February Employment Report. Despite the sequentially stronger jobs creation figure found in this week’s February ADP Employment Change report that also showed an uptick in wages for job changers, the expectation is for a sharp drop in non-farm payroll gains in the February Employment Report (200,000 vs. 353,000 in January) and a slightly slower gain in average hourly earnings of 4.4% vs. 4.5% the month before.
In the recent past, stronger-than-expected figures would have facilitated a market sell-off, but the market narrative has changed, especially with Fed Chair Powell making rate cuts a “when” not “if” for 2024. Granted the start may be later than the market or its watchers are thinking, but should the February Employment Report support an expanding economy with more people working and real wage growth continuing, that would be just fine by the market and a growing number of investors.
Taiwan Semiconductor (TSM) announced its revenue for February was ~NT$181.65 billion, a decrease of 15.8% from January 2024 but on a YoY basis rose 11.3%.
Shares of Broadcom (AVGO) slipped in aftermarket trading last night as the market looked past its January quarter beat, focusing instead on its outlook for 2024. Despite strength in its business, including "Strong demand for our networking products in AI data centers, as well as custom AI accelerators from hyperscalers, are driving growth in our semiconductor segment", Broadcom’s revenue forecast of $50.0 billion, essentially matched the $50.2 billion consensus forecast. Following the 75% move in AVGO shares, the market was expecting the company’s guidance to surprise to the upside, rather than just meet expectations.
Following strong January quarter results, shares of Marvell Technology (MRVL) shares are down in premarket trading following the company’s disappointing April quarter outlook. AI was a factor in the company’s January quarter, driving strong growth in Marvell’s data center end market revenue which increased 38% sequentially and 54% year-over-year. Marvell expects revenue for the quarter to be around $1.092-1.208 billion vs. the $1.38 billion consensus with EPS between $0.18-$0.28, well below the $0.41 market forecast. However, management shared that while it is forecasting soft demand impacting its consumer, carrier infrastructure, and enterprise networking segments in the near term, it expects those revenue declines to be behind it after the April quarter and projects a recovery in the second half of the fiscal year.
For more, be sure to read our Daily Markets column published each day by Nasdaq.
Model Musings
Artificial Intelligence
“Global venture capital funding reached $21.5 billion in February 2024 — flat month over month and slightly up from February 2023, Crunchbase data shows... Overall, AI companies captured a larger share of startup investment in February, Crunchbase data shows. More than a fifth of all venture funding in February went to AI companies…” Read more here
“Andreessen Horowitz (a16z), a Silicon Valley-based venture capital firm, is recalibrating its investment strategy. The company is aiming to raise $6.9 billion for new funds with a focus on artificial intelligence (AI). This shift puts the brakes on its crypto fund expansion.” Read more here
“Companies building artificial intelligence models into their software products need a lot of computation power, also known as “compute.” But this can be a costly expense. That’s why the AI2 Incubator in Seattle decided to find a way to provide its portfolio companies with free AI compute. The organization announced Thursday that it has secured $200 million in computing power from unnamed cloud providers and data centers.” Read more here
Digital Infrastructure & Connectivity
Vast swaths of the United States are at risk of running short of power as electricity-hungry data centers and clean-technology factories proliferate around the country, leaving utilities and regulators grasping for credible plans to expand the nation’s creaking power grid… A major factor behind the skyrocketing demand is the rapid innovation in artificial intelligence, which is driving the construction of large warehouses of computing infrastructure that require exponentially more power than traditional data centers. AI is also part of a huge scale-up of cloud computing. Tech firms like Amazon, Apple, Google, Meta and Microsoft are scouring the nation for sites for new data centers, and many lesser-known firms are also on the hunt.” Read more here
The Strategies Behind Our Thematic Models
Aging of the Population - Capturing the demographic wave of the aging population and the changing demands it brings with it.
Artificial Intelligence – Software, chips, and related companies that facilitate the collection and analysis of large data sets and autonomous generation of solutions given non-machine language prompts.
CHIPs Act – Capturing the reshoring of the US semiconductor industry and the $52.7 billion poised to be spent on semiconductor manufacturing.
Cloud Computing – Companies that provide hardware and services that enhance the cloud computing experience for users, such as co-location, security, and edge computing.
Consumer Inflation Fighters - Companies poised to benefit as consumers stretch the disposable spending dollars they do have.
Core Holdings – Companies that reflect economic activity and are large enough to not get pushed around by day-to-day market trends. Low-beta, large-cap names able to better withstand economic turmoil.
Digital Infrastructure & Connectivity -The buildout and upgrading of our Networks, Data Storage Facilities, and Equipment.
Data Privacy & Digital Identity - Companies providing the tools and services that verify authorized users and safeguard personal data privacy.
EPS Diplomats - Profitable large capitalization companies proven to produce above-average EPS growth and provide investors with the benefit of multiple expansion.
EV Transition - Capturing the transition to EVs and related infrastructure from combustion engine vehicles.
Guilty Pleasure – Companies that produce/provide food and drink products that consumers tend to enjoy regardless of the economic environment and potential long-term health hazards associated with excessive consumption.
Homebuilding & Materials – Ranging from homebuilders to key building product companies that serve the housing market, this model looks to capture the rising demand for housing, one that should benefit as the Fed returns monetary policy to more normalized levels.
Market Hedge Model – This basket of daily reset swap-based broad market inverse ETFs protects in the face of market pullbacks, overbought market technicals, and other drivers of market volatility.
Luxury Buying Boom - Tapping into aspirational buying and affluent buyers amid rising global wealth.
Market Hedge Model – This basket of daily reset swap-based broad market inverse ETFs protects in the face of market pullbacks, overbought market technicals, and other drivers of market volatility.
Nuclear Energy & Uranium – Companies that either build and maintain nuclear power plants or are involved in the production of uranium.
Precision Ag & Agri Science – Companies that look to address shrinking arable land by helping maximize crop yields utilizing technology, science, or both.
Rebuilding America - Turning the focused spending on rebuilding US infrastructure into revenue and profits.
Safety & Security – Targeted exposure to companies that provide goods and services primarily to the Defense and security sectors of the economy.
Space Economy – Companies that focus on the launch and operation of satellite networks.
The strategies behind our Dividend Income Models:
Monthly Dividend Model – Pretty much what the name says – this model invests in companies that pay monthly dividends to shareholders.
ETF Dividend Model – High-yielding ETFs that provide a range of exposures from domestic equities, international equities, emerging market equities, MLPS, and REITs.
ETF Enhanced Dividend Model – A group of high-yielding ETFs that utilize options to enhance yield through collecting option income.
Don’t be a stranger
Thanks for reading and if you have a suggestion for an article or book we should read, or a stream we should catch, email us at info@tematicaresearch.com. The same email works if you want to know more about our thematic and targeted exposure models listed below.