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Equity futures point to a modest decline when stocks start trading later this morning, but this morning’s flow of earnings reports could alter that trajectory. Roughly an hour before the open, we’ll get some additional rear view-facing data in the form of the Employment Cost Index for 1Q 2024. The figure is expected to clock in at 1.0%, up from 0.9% in the prior quarter, but the market is going to pay attention to the 1Q 2024 Wages figure vs. its 0.9% print in the prior quarter.
Quarterly results out earlier this morning from Samsung (SSNFL) spoke to artificial intelligence’s (AI) positive demand driver for memory chips with demand expected to remain strong for memory as well as AI chips. That has positive implications for several of our models, including Artificial Intelligence, Cloud Computing, and Digital Infrastructure & Connectivity. With those models in mind, earnings after today's close from AMD (AMD), Amazon(AMZN), and Super Micro (SMCI) will give us another vantage point on AI and data center spending.
When Eaton (ETN) reports it will likely discuss rising electrical power demand associated with expected AI and data center growth as well as infrastructure programs that are driving our Rebuilding America model. With that model in mind, we’ll be tracking comments from Martin Marietta (MLM) about the demand pull for concrete and aggregates from infrastructure spending programs.
California’s minimum wage for fast food workers is making headlines for rising food prices and that will have the market look to comments from McDonald’s (MCD) this morning. Questions will center on the potential demand impact of those higher prices and the margin implications of higher wages. Other topics are likely to include how McDonald’s intends to weather sky-high beef prices and what if California’s new minimum wage catches on in other states. Our thinking is those answers will support our Consumer Inflation Fighters models.
As the answers to those and other questions are had, investors will be getting ready for the deluge of economic data out tomorrow - April Manufacturing PMI reports from ISM and S&P Global, ADP’s Employment Change Report for April, and the March JOLTs Job Openings and Quits data. Those insights on the speed of the economy and inflation will be the last set of data before the Fed renders its next monetary policy decision tomorrow afternoon. The wide expectation is the Fed will leave interest rates as is, however, the far greater focus will be on Fed Chair Powell’s presser comments about rate cut prospects in 2H 2024.
We expect Powell will remain “data dependent” but acknowledge recent inflation data hasn’t provided the Fed with more of the “good data” it needed to see to begin a rate-cutting cycle. Our view has been Powell’s comment about wanting to see “more good data” was a means to let the market come to grips with the likelihood of much fewer rate cuts compared to the 5-6 it expected entering 2024. That strategy is working because the CME FedWatch Tool now only shows a 39% probability for one rate cut following the Fed’s December meeting. The question the market will soon face is what if rate cut expectations shift to 2025?
Related: Fed Heads Follow Rebounding Manufacturing and Inflation Data