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Will upcoming Fed heads push back on market expectations for multiple rate cuts this year?
Following yesterday’s drubbing of Big Tech stocks that pressured the Nasdaq Composite into its worst day since 2022, equity futures point to a rebound following better than expected quarter results from Taiwan Semiconductor (TSM).Revenue for TSM’s June quarter rose 32.8% year over year with smartphone rising in line with the overall revenue increase but once again the company’s High Performance Computing segment, the one that houses AI and data center, was the champ. That revenue soared almost 57% year over year and 24.7% compared to the March quarter.
In terms of TSM’s outlook for the current quarter, on its earnings call the company shared that “Over the past three months, we have observed strong AI and high-end smartphone related demand from our customers, as compared to three months ago…” That sequential improvement led management to issue September quarter guidance that, at the midpoint calls for revenue to climb 32% year over year (10% sequentially). We see folks circling back to companies housed in our Artificial Intelligence, Digital Infrastructure, and Cloud Computing models. The next set of catalysts to watch will be capital spending comments from Alphabet (GOOGL), Meta (META), Amazon (AMZN), Microsoft (MSFT), and others when they report their June quarter results in the coming days and weeks.
Homebuilder DR Horton (DHI) also reported this morning sharing the number of homes closed during the June quarter rose 5% year over year to 24,155. Management’s guidance for 90,00-90,500 homes to be closed for the 12-months ending with the current quarter, implies September quarter home closings rising 4%-7% compared to the year-ago quarter. This builds on the recent positive action for our Homebuilding & Materials model, and we’ll look for confirmation when PulteGroup (PHM) reports next week.
Even after yesterday’s market action, the Homebuilding & Materials model’s quarter to date move showcases the market’s growing confidence in multiple rate cuts before the end of the year. We acknowledge the market could once again be out over its skis with its thoughts for three rate cuts, but over the next 12-18 months we do see the Fed returning monetary policy to a more neutral stance compared to the current “restrictive” level cited by central bankers.
Still, we could see the stock market jostle around further if upcoming Fed head speakers today and tomorrow push back on the number of potential rate cuts this year. Our thinking is they did not miss the upward climb in year over year core PPI data for the last few months. That and the potential for a volatile earnings season that could see the market trade day-to-day based on the latest high profile earnings report, we’re glad we have the Market Hedgemodel in our stable.
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