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Equity futures are up modestly this morning with investors digesting “unwavering” AI demand per Palantir (PLTR)and October revenue from Apple (AAPL) partner Foxconn (HNHPF). Amid the digestion of those reports and numerous others coming today as well as the October ISM Services PMI, the mood hanging over the market will be the 2024 presidential election. After months of campaigning, today is Election Day, and being the policy-specific people that we are, all we’ll say is get Rock the Vote! Be sure to get out and cast your vote. 

While we could see a winner declared tonight or early tomorrow, we recognize it’s possible it could be a bit longer until we know who the next president-elect is. We’d also point out that while attention has been focused on the next commander-in-chief, as investors we must also pay close attention to the composition of Congress. The outcome on both fronts will tell us a great deal more about the potential policy roadmap ahead and that is what investors will need to puzzle through when it comes to analyzing various market segments.
 

“Unwavering” demand for AI

Last week Microsoft (MSFT) shared demand for AI and cloud was outstripping demand. Last night on its earnings call, Palantir added another layer of strong support for AI adoption. “As America rapidly embraces the AI revolution, this increase in AI demand has driven the outperformance in our U.S. business, which grew 44% year-over-year. Our U.S. commercial business grew 54% year-over-year and 13% sequentially. Our U.S. government business grew 40% year-over-year and 15% sequentially, a seven-fold increase compared to the prior year period growth rate and the strongest growth we've seen in 15 quarters.”

Building on Palantir’s comments, Foxconn’s October revenue rose 9.8% sequentially and ~8.65 year over year hitting record levels with continued strength in AI servers, computing products, and smart consumer electronic products. The next data point for AI, smartphones, and AI PCs will be Taiwan Semi’s (TSM) October revenue report, which could come later this week or early next week.  We’ll also be paying attention to comments after today’s market close from Lumentum (LITE). 

The above comments bring additional layers of support for our Artificial Intelligence and Digital Infrastructure models, but they weren’t the only data points. The sequential improvement in NXP Semiconductor’s (NXPI) Communication Infrastructure segment is constructive for our Digital Infrastructure model. We’ll match that against end-market demand comments this morning from Global Foundries (GFS) and its comments about chip capacity and capital spending will be something we watch for our CHIPs Act model. 
 

Homebuilding data points on deck

For our Homebuilding & Materials model, we have a triple-shot of data points coming from LGI Homes (LGI), Builders FirstSource (BLDR), and TopBuild (BLD). In recent weeks, homebuilders have guided for stronger deliveries in 2H 2024 but as mortgage rates rebounded, new home mortgage applications have slowed. This could lead to more conservative guidance from these three companies, but our play with this model is more attuned to the Fed getting monetary policy back to a more neutral footing over time and the ensuing rebound in housing activity. 
 

What to watch in the October ISM Services PMI data

Turning to today’s economic calendar, following last week’s issue-riddled October Employment Report, the focus will be on the October ISM Service PMI and what it says about the part of the economy that has been carrying the overall economy. We won’t be the only ones leaning on the data and what the picture it reveals for October job creation in the service sector. Our thinking is between those findings and ADP’s far stronger-than-consensus October jobs print, the Fed will have a clearer picture of the strength of the labor market than indicated by the October Employment Report. 
 

Getting ready for the Fed

That same October Employment Report also gives the Fed ample cover to deliver a 25 basis point rate cut Thursday afternoon. The odds of Fed Chair Powell issuing overly dovish comments about the pace of future rate cuts is likely to disappoint. Outside the October Employment Report, the bulk of data has pointed to a resilient economy and recent inflation figures have been sticky. This suggests Powell and crew are more likely to stick to the Fed playbook of making decisions meeting by meeting and remaining data dependent. 

As you think about this, let’s remember the Fed will deliver its next set of updated economic projections with the results of its December meeting. From our perspective, the greater point of focus should not be whether the Fed is cutting this or that time but rather the stated goal to get Fed policy back to neutral over time. The challenge will be contending with a market that more often than not gets ahead of itself when it comes to rate cuts. 

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