Market Recap
It’s amazing what can happen when tariffs with our third-largest trading partner go from 245% to a potential 30%, in 90 days, of course. For proof, all you need to do is observe yesterday’s broad equity index returns. The Dow gained 2.81%, the S&P 500 added 3.26%, and the Nasdaq Composite rose 4.35%. Even small caps rode the wave, closing up 3.42% by the close. As it turns out, there will be dolls enough for everyone, and they may even cost less than “a couple of bucks more.”
As you can tell from the broad index results, Mag 7 and technology exposures were additive. Indeed, Mag 7 names, including Broadcom (AVGO) and JP Morgan Chase (JPM), made up the top 10 contributors to return for holdings of the SPDR S&P 500 ETF Index Trust. That these names only contributed to just over 50% of the fund’s 3.30% result speaks to the broad nature of the rally, as does the 410/93 advance decline line for fund holdings. Except for Utilities, which fell 0.60%, sectors were higher across the board, led by Consumer Discretionary (4.97%) and Technology (4.64%). Amazon (AMZN) and Tesla (TSLA) contributed to just over 50% of Consumer Discretionary returns while Technology’s 3 Mag 7 names – Apple (AAPL), Nvidia (NVDA), and Microsoft (MSFT)) only took credit for 40% of that sector’s result, again speaking to the broadness of the rally in Technology.
Gold traded lower but only to $3,237.90/oz, or down 2.63%, so there seems to be at least some investors who are looking beyond the current 90-day tariff moratorium to what effect a 30% tariff on Chinese goods may have. To be clear, gold demand has the potential to reflect global geopolitical risks so while today’s tariff pullback is being counted as a win by US equity markets, there’s still plenty of potential risks worth hedging for some.
The Tematica Select Model Suite shared in today’s positivity, with a number of strategies outperforming both the S&P 500 and their respective broad sector indexes as well. Leading the pack was the CHIPs Act, followed by Homebuilding & Materials, Cloud Computing, and Luxury Buying Boom. Aside from Market Hedge, the only strategies to lose ground yesterday were Cash Strapped Consumer, as various discount broadline retailers traded off, and EPS Diplomats, which was negatively impacted by gold moving lower as well as the corresponding sympathy trade in silver miners.
April Inflation & Retail Sales Data Ahead, But Why Earnings Will Matter More
Following yesterday’s strong move in the market, it’s not surprising to see it give some of those gains back. From a technical perspective, folks will be looking to see how the S&P 500 holds against its 100 and 200-day moving averages. Will that broad market index successfully test those levels, making them a layer of support, or will they remain resistance levels?
The answer should become clear in the next few days, ones that include multiple April inflation figures, fresh comments from Fed Chair Powell on Wednesday, the April Retail Sales report, and quarterly results from Walmart (WMT).
Our view is that US-China trade developments will likely give a pass of sorts to the April data, even though it will likely show core inflation perking up sequentially as the impact of tariffs is felt, echoing what was seen in the April PMI data from
We’re not expecting as much of a sequential increase for headline inflation, largely due to the April fall in oil prices, which leaked through to gas prices
When it comes to April Retail Sales, investors will be comparing the data against the March report more so than usual to determine if spending was pulled forward ahead of expected April tariffs. One factor that may complicate that analysis is the timing of this year’s Easter holiday (April 20) compared to last year (March 31). Aside from the April data, we’ll utilize the three-month trailing data found in the April Retail Sales report as a yardstick by which to measure the latest quarterly results from retailers, seeing which ones are gaining or losing share.
Setting the stage for that will be Walmart’s April quarter results, but candidly, we’ll be more interested in its forward-facing comments as it discusses port cargo traffic and the rollback in US-China tariffs. Those insights will reset expectations for the likes of Best Buy (BBY), Macy’s (M), Target (TGT), TJX Companies (TJX), and a host of others
As those quarterly results are digested and guidance updated, it will lead to another round of EPS revisions for the S&P 500. As folks contemplate what that means for EPS growth, it will likely trigger questions about the appropriate market multiple. On that, we’ll share that over the last 10 years, excluding 2020 because of the pandemic, the S&P 500’s average peak P/E is 20.8x. If we go back to 2000, that multiple is 19.4x.
Doing the math, one can see why Trump may be more anxious about his ability to close trade deals and push through tax cuts than he admits.
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.
- Data Privacy & Digital Identity – Companies providing the tools and services that verify authorized users and safeguard personal data privacy.
- 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.
- 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.