With Tariffs Off The Table, Focus Returns to Earnings
Which include Alphabet, AMD, Pfizer, Merck Pepsico and Ferrari, to name a few.
Market Wrap
US Futures and overseas markets began the day playing out as everyone had envisioned, given Trump’s weekend tariff declarations. US markets opened also as expected up until Mexico’s president announced on “X” that a tacit agreement had been reached that involved Mexico bolstering its border with 10,000 officers and the US pledging to take steps to stem the flow of arms in to Mexico. Markets responded almost immediately, the S&P 500 gaining 0.83% in about five minutes, and aided by reports of a call between Trump and Trudeau helped the index rally 1.19% from intraday lows. It was only after the market close that it was confirmed that a 30-day hold on Canadian tariffs had materialized. There have been no announcements regarding progress on China tariffs.
While an overall meltdown was avoided, broad equity indexes ended the day lower across the board. The Dow declined 0.28%, the S&P 500 fell 0.76%, the Nasdaq Composite shed 1.20% and the Russell 2000 gave back 1.28%. Looking at the S&P 500, the advance/decline ratio was 180: 323 which points to a lower day but the Mag 7 subset of Apple (AAPL), Tesla (TSLA) and Nvidia (NVDA) contributed to just over 75% of the day’s result. Volatility responded as well, spiking to 20.24 intraday, settling down to 18.62 but still over 13% above the prior day’s close.
Given yesterday’s market action it shouldn’t be too much of a surprise that the majority of the Tematica Model Suite ended the day lower although Core Holdings and Digital Payments posted positive returns, as did Market Hedge. Looking at the entire list of Model Suite components we saw 65 names advancing and 128 names declining so while the overall trend was lower, from an advance/decline perspective, the model suite fared better than the S&P 500 for what its worth.
Tariffs? What Tariffs? Back to Regularly Scheduled Earnings.
Futures are mixed this morning with the Nasdaq mini just poking its nose above water after a strong beat and raise quarter from Palantir (PLTR) prompted a number of price target increases and is putting some life back into the AI trade.
On the earnings front, the focus will be on a few sectors. Alphabet (GOOG, GOOGL), Advanced Micro Devices (AMD) and Juniper Networks (JNPR) will give us some more insight into the state of AI. Pfizer (PFE), Amgen (AMGN) and Merck (MRK) will give us some color on the state of Big Pharma. Finally, we’ll get some insight into the state of the consumer as we hear from Pepsico (PEP), Chipotle (CMG), Estee Lauder (EL) and, for the well-heeled among us, Ferrari (RACE).
With the Mexico and Canada tariff situation now taken of the front burner, market participants can focus their attention on parsing the effect of tariffs on China, as well as regular economic releases and the balance of the Q1 earnings season. While not an imminent threat, Trump did mention that Europe is also in his tariff crosshairs, but we have yet to hear more on any plans he may have there.
Given yesterday’s tariff headlines, it was difficult to pay attention to regular way market news but it wasn’t lost on us that for the first time since October 2022, ISM’s Purchasing Managers Index (PMI) covering Manufacturing crossed above 50, pointing to expansion for US manufacturers. A quick reminder about the differences between the ISM and S&P Global/Markit PMI methodology is ISM is focused solely on US companies’ domestic activity while the Markit survey takes any non-US activity into account, so yesterday’s milestone was a win for US companies.
Today’s economic news includes an JOLTS Job Openings update for December and is expected to have dipped slightly below 8 million which would reverse the past couple of months of data but still leave the metric above the most recent September 2024 trough.
Overall, today seems like it will be back to business for markets. Not exactly a “buy the dip” scenario but at least North American tariffs are off the table for the next 30 days.
Model Signals
Guilty Pleasure
Wingstop Inc. has partnered with OPI RapiDry Quick-Dry Nail Polish for a pre-Super Bowl promotion, the company said Thursday. The Dallas-based wing brand teamed with Los Angeles-based OPI to introduce the “Snack in :60 Challenge,” inviting customers to dine smudge-free 60 seconds after they paint their nails. Read More Here
Domino’s Pizza has announced a partnership with Australian wine brand, Yellow Tail to create a limited-edition red wine blend that is supposed to be the “perfect pairing” with a Domino’s Pizza. Read More Here
“We need to go in to places we haven't really been before: we need to go out into suburban America,” Lynch said. “We're looking at smaller footprints so we can go into real estate that we didn't previously have access to, and that’s going to open up the aperture and allow us to expand rapidly. In order to do that, we need to be able to deliver consistent margins with where we are today, with smaller Shacks getting less volume.” Read More Here
Cash Strapped Consumer
‘This is a new era of food insecurity,’ a Feeding America researcher says. Food banks across the nation are seeing a similar story: A postpandemic wave of demand for food driven by working people caught in America’s cost-of-living crunch. Read More Here
Data Privacy
PCLOB [Privacy and Civil Libertes Oversight Board] is tasked with making sure the federal government's extremism prevention programs are in line with safeguarding civil liberties and privacy. The board was established at the recommendation of the 9/11 Commission in 2004 after the September 11, 2001, attacks. 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.
Cash Strapped Consumers - Companies poised to benefit as consumers stretch the disposable spending dollars they do have.
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.
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.
Cybersecurity - Companies that focus on protecting against the penetration of digital networks and the theft, ransom, corruption, or destruction of data.
Digital Infrastructure & Connectivity - Companies that are integral to the development and the buildout of the infrastructure that supports our increasingly connected world.
Digital Lifestyle - The companies behind our increasingly connected lives.
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.
Nuclear Energy & Uranium – Companies that either build and maintain nuclear power plants or are involved in the production of uranium.
Luxury Buying Boom - Tapping into aspirational buying and affluent buyers amid rising global wealth.
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 indicates – 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 above.