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Equity futures point to a lower open for stocks later this morning. The lone piece of fresh economic data out today, the May reading for the NFIB’s Small Business Optimism Index, hit a 2024 high at 90.5 but remains well below the historical average of 98. Echoing findings across the May PMI reports, 22% of owners reported that inflation was their single most important problem in operating their business, unchanged from April and the top business problem among owners. 

It also seems that wage and inflation pressures are poised to continue. A net 18% of owners plan to raise compensation in the next three months, down three points from April and the lowest reading since March 2021. Forty-two percent(seasonally adjusted) of all owners reported job openings they could not fill in the current period. The net percent of owners raising average selling prices was unchanged from April at a net 25% seasonally adjusted. Price hikes were the most frequent in retail (55% higher, 6% lower), finance (50% higher, 3% lower), construction (42% higher, 9% lower), manufacturing (42% higher, 12% lower), and services (37% higher, 6% lower) sectors.

Investors will mull those findings over as well as the implications of yesterday’s Apple’s (AAPL) WWDC as we wait for tomorrow’s May CPI report and the outcome of the Fed’s policy meeting. Included in the Fed’s post-policy meeting materials will be its updated set of economic projections. While many are focused on implied rate cuts for 2H 2024, we will also be focused on what these latest projections say about 2025 rate cuts. 
 

Apple and Apple Intelligence

Apple’s WWDC keynote revealed the next wave of updates to its various software platforms as well as its AI efforts, which it is referring to as “Apple Intelligence.”  Based on the post-event movement in the shares, it’s fair to say the market was underwhelmed by what it heard, likely because much was covered in pre-event chatter, but there is little question Apple Intelligence will foster a device upgrade cycle. We say this because customers have to upgrade to the iPhone 15 Pro, and Pro Max that Apple began selling in September 2023, or wait for the next iteration of iPhone models. 

With an estimated 270 million iPhones that have not been upgraded in four years, Apple Intelligence and the shift to USB-C adapters are likely to foster an upgrade cycle. That should benefit several chip companies housed in our Digital Infrastructure model, while the growing use of AI, including Apple Intelligence, should tighten existing network capacity and give rise to another wave of capital spending. 

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