Equity futures point to a mixed market open later this morning, but odds are we’ll see a subdued trading session as investors wait for what’s revealed in tomorrow’s November Consumer Price Index (CPI) report. Headline CPI is expected to tick up to 2.7% YoY from October’s 2.6% print, while the consensus view for the core reading sits at 3.3% YoY, the same as September and October, and up from 3.2% for the two prior months. Looking at an early view on December CPI, the Cleveland Fed’s Inflation Nowcasting model doesn’t offer much hope for a meaningful decline.
Coming off recent comments from Fed Chair Powell at the 2024 DealBook Summit, a 3.3% or warmer core print for November would raise questions about a December Fed rate cut. Currently, the market sees such a cut as very likely, which means tomorrow’s CPI report and Thursday’s November Producer Price Index report have the potential to throw the market a curve ball.
While we wait for that report and the reverberations through market rate cut expectations or not, Taiwan Semi (TSM) reported November revenue that rose just shy of 34% YoY. While the typical seasonal pattern of a decline compared to October repeated, the company’s combined October and November revenue, which rose 31% YoY, should dampen any questions about AI, data center, or smartphone demand. It’s also a nice positive for our Digital Infrastructure and Digital Lifestyle models.
Sticking with chips, this morning brings a nice data point for our CHIPs Act model in the form of a statement from Vice President Kamala Harris regarding that program and Micron Technology (MU):
“Today, thanks to our historic legislation, the Department of Commerce has finalized one of its largest awards to date with Micron Technology, the only U.S.-based manufacturer of memory chips. This more than $6.1 billion investment in Clay, NY, and Boise, ID supports the construction of several state-of-the-art memory chips facilities as part of Micron’s total $125 billion investment over the next few decades, creating at least 20,000 jobs by the end of the decade. These investments will help the U.S. grow its share of advanced memory manufacturing from nearly 0% today to 10% over the next decade.”
That overall investment bodes rather well for semi-cap equipment demand and our model, and odds are we will see more awards before we close out 2024.
Despite the pressure we’re likely to see on Oracle (ORCL) shares this morning, supportive comments for our Cloud Computing and Artificial Intelligence models were made during the company’s earnings call. “ Record level AI demand drove Oracle Cloud Infrastructure revenue up 52%. But excluding legacy hosting infrastructure, cloud services revenue was up 55%. Our infrastructure cloud services now have an annualized revenue of $9.7 billion.”
During the call, Oracle Chairman and CTO Larry Ellison also supported one of our thoughts that AI adoption will translate into greater investment in digital infrastructure, “… as we make our networks faster, the AI training will get faster. If we don’t — if no one makes the networking faster, then I think there’s a potential bottleneck. But we’re trying to avoid that bottleneck by speeding up our networking.” That along with the Signal below about 6G keeps us long-term bullish on our Digital Infrastructure model.
Outside of Tech, homebuilder Toll Brothers (TOL) reported October quarter results that topped Wall Street expectations led by a 25% jump in delivered homes. For the current quarter, the company expects deliveries of 1,900-2,100 vs. 1,927 in the year-ago quarter. For fiscal 2025, Toll guided deliveries to 11,200-11,600 homes compared to the 10,813 delivered in fiscal 2024. Those year-over-year increases bode well for our Homebuilding & Building Products model, and we’ll be interested in comments made during this morning’s earnings call about the cadence of demand and mortgage rate expectations.
Model Musings
Aging of the Population
“The level of apprehension that workers are feeling as they save for retirement has been increasing, although it is lower among those who have already retired, according to the 2024 Global Retirement Survey by MFS. The firm surveyed 725 defined-contribution plan participants and 310 retirees in the U.S. It found that 52% of plan participants said they were so worried about the economy that they made their investments more conservative.” Read more here
“Few slow-moving developments are more astonishing, or consequential, than the surge in lifespans over the past century. In 1900, the typical American could expect to live only until their mid-40s. Now, that figure stretches well into the 70s. Today, an American who reaches age 65 can expect to live, on average, nearly 20 more years. Contrast that to 1900, when just 4 percent of Americans even made it to 65.” Read more here
Artificial Intelligence
“In August 2024, 39 percent of the U.S. population age 18-64 used generative AI. More than 24 percent of workers used it at least once in the week prior to being surveyed, and nearly one in nine used it every workday. Historical data on usage and mass-market product launches suggest that U.S. adoption of generative AI has been faster than adoption of the personal computer and the internet.” Read more here
Cash-Strapped Consumers
“The United Nations’ world food price index rose in November to its highest level since April 2023, recording its biggest gain in 19 months on the back of surging vegetable oil prices, data showed on Friday. The price index, compiled by the U.N. Food and Agriculture Organization (FAO) to track the most globally traded food commodities, increased to 127.5 points last month from a revised 126.9 points in October, the highest level in 19 months and up 5.7% from a year ago.” Read more here
Cybersecurity
“Chinese government hackers have compromised telecommunications infrastructure across the globe as part of a massive espionage campaign that has affected dozens of countries, a top U.S. security official said Wednesday.” Read more here
“The black-and-white message flickering across computer screens sparked panic at Knights of Old, a 158-year-old UK delivery company: “If you’re reading this, it means the internal infrastructure of your company is fully or partially dead.” Knights’ network for managing trucks was down. So was the system for booking payments. From 2,000 miles away, a criminal, Russia-linked hacking gang known as Akira had sabotaged the computers at Knights of Old and two related trucking companies.” Read more here
Digital Infrastructure
“Most people in the US who have flagship phones with mainstream carriers are on 5G networks. And while 5G tech is noticeably faster than its predecessors, it’s still weak compared to Wi-Fi and fiber internet. That’s why we’re already looking forward to 6G, the next-gen wireless data standard that just set an incredible speed record. According to NewScientist, a recent test conducted by researchers at University College London showed that 6G wireless can transmit data at speeds up to 938 gigabits per second (Gbps). The theoretical max download speed of 5G wireless is 20 Gbps.” Read more here
Guilty Pleasure
“It is not just New York: “gaming”, as the industry euphemistically calls itself, is booming across the country. Some 40% of Americans say they wager on sport—a business that was illegal in every state but Nevada until 2018. The amount punters bet on sport on apps such as FanDuel and DraftKings was a mere $7bn that year; this year it should reach almost $150bn. That will generate around $14bn in revenue for the companies concerned. Online casinos, which bring in around half the revenue that sports-betting does, are growing almost as quickly.” 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 Consumer – 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.
- Data Privacy & Digital Identity – Companies providing the tools and services that verify authorized users and safeguard personal data privacy.
- Digital Infrastructure & Connectivity –The buildout and upgrading of our Networks, Data Storage Facilities, and Equipment.
- Digital Lifestyle – The companies behind our increasingly connected lives.
- Digital Payments – This model focuses on companies benefitting from the accelerating structural adoption of digital payments and financial technology (FinTech).
- 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.
- 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.
- 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 above.