Traders and investors alike let out a collective groan almost as loud as Kansas City Chiefs fans did on Super Bowl Sunday once they saw yesterday’s inflation print. While not a blowout number, it made a clear enough statement to markets that they should take Powell’s comments that “we do not need to be in a hurry to adjust our policy stance” to heart. Still, while the S&P 500 index opened down 1.02%, it, and other broad equity indexes clawed their way higher throughout the day. The Russell 2000 fell 0.87%, the Dow shed 0.50%, and the S&P 500 ended the day 0.27% lower while the Nasdaq Composite managed to break into positive territory ending 0.03% higher.
Sectors were lower across the board except for Communication Services, which posted a 0.11% gain on the backs of Meta Platforms (META) and Netflix (NFLX) which combined to contribute to just under 400% of the sector’s return. The remaining sector results ranged from -0.02% (Consumer Discretionary) to -2.41% (Energy). Volatility eased slightly as the VIX closed at 15.89 but we did see treasuries trade lower, pushing the 10-year treasury yield to 4.60% and gold continued its march to $3,000 trading at $2,909.10/oz overnight. Oil also reacted, over 3% lower on the combination of continued excess inventories and lower expected demand given the further delay in rate cuts.
The Tematica Select Model Suite saw a mixed day, led by the now familiar duo of Cloud Computing and Nuclear Energy & Uranium, followed by Luxury Buying Boom. Core Holdings and EPS Diplomats ended the day essentially flat while Rebuilding America and Homebuilding & Materials lagged. Space Economy fared the worst as Globalstar (GSAT) traded 13% lower the first day after its 1:15 reverse split, as traders sent a clear message to company management regarding valuation.
Reciprocal Trump Tariffs to Trump January PPI Data
Equity futures point to a rebound following yesterday’s January CPI-fueled move lower and the ensuing comment from Fed Chair Powell the Fed has more work to do. Given the lead time between the Producer Price Index (PPI) and the consumer-facing one, the market will be drilling down into today’s January PPI report to get an advanced look at what February and March CPI may look like. On a year-over-year basis, core PPI is expected to dip to 3.3% from 3.5% in December. Such a move would make it the lowest reading since November. To some extent, because of recent tariff action and the expectation President Trump will announce reciprocal tariffs today, the impact of the January PPI report could be more muted.
As we see it, next week’s Flash February PMI report could bring more insightful findings when it comes to inflation and other tariffs. We recognize that the report may not fully reflect Trump’s actions expected later today or ensuing responses from other countries. But it’s hard to see how upcoming inflation data gets back on track toward the Fed’s 2% target. We continue to think that the likely scenario and Trump calling for lower interest rates as tariffs are put into action sets up a potential showdown between Powell and Trump. Caught in the crosshairs will be the market and potentially the economy.
As we look to puzzle through the impact of upcoming tariff announcements, we’ll naturally read through them but we will also be collecting comments from companies as they report their quarterly results as we move into the final stages of the current earnings season. It will skew toward retailers and retail-facing companies, and what they say about product supply, input costs, and margins will be of more than passing interest to us.
Helping set the stage for those upcoming reports is Friday’s January Retail Sales report. Recent employment and wage data indicate real wage gains have persisted, but revolving credit, largely a reflection of credit card debt, increased at an annual rate of 20.2% to $1.382 trillion in December. That helps explain the strong end-of-year finish in the December Retail Sales report, but it also suggests we could see consumers being more thrifty at the start of 2025 as they look to whittle down those credit card bills. The market consensus calls for January Retail Sales to dip 0.1% on a sequential basis.
While the market waits for today’s PPI report and Trump’s reciprocal tariff announcement, it will contend with another wave of quarterly earnings. Among the ones we’ll be assessing and collecting data points for our various targeted exposure models described below are American Electric (AEP), CyberArk (CYBR), Duke Energy (DUK), Herc Holdings (HRI), Lincoln Electric (LECO), and Molson Coors (TAP). The roster for that activity after today’s market close shifts to Airbnb (ABNB), Applied Materials (AMAT), Digital Realty Trust (DLR), Motorola Solutions (MSI),and Palo Alto Networks (PANW).
Model Musings
Artificial Intelligence
Last October, a survey by Deloitte on uptake in Europe found almost half (47 per cent) of respondents familiar with generative AI had used it for personal activities, while a quarter (23 per cent) had used it for work. The report also revealed that a quarter of employees used models that they paid for themselves. Read more here
Artificial Intelligence, Cybersecurity
Cybercriminals are using GhostGPT, a newly discovered and completely uncensored AI chatbot, for malware creation, phishing scams and more… The Abnormal report revealed that GhostGPT is readily available to cybercriminals using the Telegram messaging service where it can be accessed as a Telegram bot once a fee is paid. “It lowers the barrier to entry for new cybercriminals, allowing them to buy access via Telegram without needing specialized skills or extensive training,” Read more here
Guilty Pleasure
Mondelēz International and Hershey warned that stubbornly high cocoa prices are expected to weigh on their businesses throughout 2025. Dirk Van de Put, Mondelēz CEO, said in a statement that the Oreo and Toblerone maker is focused on navigating “unprecedented cocoa cost inflation.” The snacking giant estimated higher cocoa prices and inflation would lower its adjusted earnings per share in 2025 by approximately 10%. Read more here
Guinness owner Diageo estimated a $200 million hit to operating profits in its next financial quarter, beginning in March, if tariffs on the U.S. and Mexico go into effect next month. Nik Jhangiani, the spirit producer’s chief financial officer, said on an earnings call Tuesday that 45% of its net sales in the U.S. are derived from products made in Mexico and Canada, with the “vast majority” of them being tequila. Read more here
Homebuilding & Materials
“We expect the challenging environment for homebuilders to persist through [the first half of 2025]. Investors tend to focus on demand, but we are more concerned about higher cost inflation (rising land prices) and a more competitive selling environment (increasing inventory and higher mortgage rates),” Read more here
“If you look at the home builders, they’re generating a lot of cash and they’re not growing as much,” says Tony Avila, founder and CEO of Builder Advisor Group. “The builders are generating cash right now and looking at how to grow this year and beyond. They’re looking at M&A and that’s what keeps us very busy.” Read more here
Nuclear & Uranium
Vietnam’s Prime Minister Pham Minh Chinh has instructed two state-owned groups, Electricity of Vietnam and Vietnam Oil & Gas Group, to complete the construction of two nuclear power plants in Ninh Thuan province by the end of 2030… Vietnam’s proposed Ninh Thuan nuclear power project consists of two plants, with each plant comprising two reactors. The Ninh Thuan 1 plant is located in Phuoc Dinh commune, Thuan Nam district. The Ninh Thuan 2 plant is located in Vinh Hai commune, Ninh Hai district. Read more here
Space Economy
We estimate that the global space economy will be worth $1.8 trillion by 2035 (accounting for inflation), up from $630 billion in 2023. This figure includes both “backbone” applications—such as those for satellites, launchers, and services like broadcast television or GPS—and what we term “reach” applications”—those for which space technology helps companies across industries generate revenues. Uber, for example, relies on the combination of satellite signals and chips inside smartphones to connect drivers and riders and provide directions in every city. 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.