Photo by Marques Thomas on Unsplash
 

Slightly cooler April inflation data buoyed markets yesterday, pushing all major equity indexes to post gains north of 1% except for the Dow (0.88%), which was held back by declines in names like Traveler’s Companies (TRV), Walt Disney (DIS), and familiar laggard Boeing (BA). As Technology sat atop the sector leaderboard, the Nasdaq Composite ended the day 1.40% higher, setting the broad equity index pace. The consumer trailed as Staples (0.15%) and Discretionary (0.06%) held the bottom 2 spots.

Technology-focused models had a strong day, with Cloud Computing, CHIPs Act, and Artificial Intelligence filling in three of the top five slots. Still, it was Homebuilding & Materials that topped the list as holdings filled 4 of the top 10 returns across all holdings in the entire suite of 20 models. Also making a place in the top 5 models was Rebuilding America, at #4. 

This morning brings quarterly results from Walmart (WMT), Canada Goose (GOOS), and Under Armour (UAA), with Applied Materials (AMAT) and Take-Two (TTWO) on deck after today’s market close. When we dig into Walmart’s results, we’ll be interested in management’s comments about consumer spending patterns, basket size, average ticket, and indications if shoppers are leaning into private label brands. The answers should be constructive for our Consumer Inflation Fighters strategy, especially if Walmart’s same-store sales point to the retailer winning consumer wallet share. Quarterly sales figures from Canada Goose and Under Armour will add another dimension to consumer spending patterns. 

With funds starting to flow from the US CHIPs Act and similar efforts underway in the eurozone, Japan, and now Korea, the outlook provided by Applied Materials should be bright. We also suspect ramping AI, data center, and soon AI-on-device chip demand will lead the semi-cap company to paint a favorable capital spending picture. All that bodes very well for our CHIPs Act strategy and model, which as you can see below is significantly outpacing the S&P 500 so far this year. 

In terms of fresh economic data, we have the April Housing Starts report out at 8:30 AM ET, and the market forecast calls for total housing starts to reach 1.42 million units, up from 1.321 million in March. In the report, because of the potential multiplier effect on the economy, the focus will remain on the single-family housing market and how the April figure stacks up against the 1.022 million March figure. Later in the morning, April Industrial Production will be reported, adding another view on the manufacturing economy. Once these figures are out in the wild, the Atlanta Fed will update its GDPNow model for the current quarter, which was revised yesterday to 3.8% from 4.2% following the release of April CPI, PPI, and Retail Sales data.  

Today also sees another wave of Fed speakers including Richmond Fed President Tom Barkin (10:00 AM ET), Fed Vice Chair for Supervision Michael Barr (10:00 AM ET), Cleveland Fed President Loretta Mester (12 PM ET), and Atlanta Fed President Raphael Bostic (3:50 PM ET). Coming off yesterday’s April CPI report that showed core CPI improved to 3.6% on a year-over-year basis and softer than expected April Retail Sales, the market warmed to the idea of a September rate cut.

However, 3.6% is still far from the Fed’s 2% target. And while we don’t expect the Fed will wait until that target is reached to begin dialing back currently restrictive monetary policy, we see a high probability today’s Fed speakers will signal the central bank will need to see “more good data” before embarking on a rate cutting cycle. Our thinking is the Fed will want to see core CPI move sustainably below the 3% level before it softens its language on rate cut timing. 

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