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Plus another swarm of thematic signals!
Equity futures point to a rebound this morning following some see-saw action in US equity markets following the Fed Chair Powell’s post-policy meeting presser. During that press conference, Powell hit home that the Fed doesn’t see it as appropriate to cut rates until it has more confidence that inflation is sustainably approaching its 2% target. Much to the market’s relief, Powell reiterated the Fed’s policy is sufficiently restrictive, and that it does not see the need to hike rates any further. However, the road to rate cuts is likely to take longer than previously thought.
With a light economic calendar, investors will ponder that today ahead of tomorrow’s April Employment Report and back-to-back April Service PMI reports. Investors will be looking to see if the Services sector continues to carry the overall economy, if jobs, as well as wage gains, will continue to carry consumer spending, and if Service sector inflation pressures escalated during the month. Setting the stage, ADP’s Employment Change Report for April showed the jobs market continues to outperform expectations, but wage pressures remain in place. The message in contrasting yesterday’s two April Manufacturing PMI reports is that activity slowed during the month, but inflation pressures accelerated. Per ISM, the April Manufacturing PMI Price component continued the uptrend in the data we’ve seen so far this year, hitting the highest level since early 2022. The culprit? Raw material and energy prices. In the last few days, oil, copper, cocoa, and other commodity prices have softened but remain well above levels from earlier this year.
After today’s market close, Apple (AAPL) will report its quarterly results and shares its near-term outlook. Recent days have shown that in the case of AMD (AMD), Microsoft (MSFT), and Super Micro (SMCI), good earnings reports aren’t good enough. Sequentially down June quarter guidance from RF semiconductor companies Skyworks (SWKS)and Qorvo (QRVO) hit their shares but also added a note of caution about Apple’s near-term outlook for iPhone. Because Apple is the second largest component of the S&P 500 (5.85%) and the second largest in the Nasdaq Composite(11.1%), guidance for the current quarter that underwhelms market expectations is likely to weigh on the market as we close out a week that continues the market’s April move lower. To us, that supports holding our Market Hedge model as we close out the week.
As it relates to our AI and Digital Infrastructure & Connectivity models, South Korean chipmaker SK Hynix shared that its high-bandwidth memory (HBM) chips used for AI chipsets were sold out for this year and almost fully booked for the next year, amid demand for semiconductors required to develop AI services. This follows recent comments from Micron (MU) that its HBM chips were sold out for this year and the bulk of its supply for next year was already booked. And on the topic of HBM chips, earlier this week Samsung (SSNLF) noted that 2024 shipments of its HBM chips are anticipated to grow over three-fold.
And while Qualcomm (QCOM) reiterated its outlook for flat smartphone market sales this year, with 5G models climbing high-single to low-double digits, the company endorsed the coming AI-on-device upgrade cycle for PCs, smartphones, tablets, and other devices. We see this driving not only our AI model, but the ensuing acceleration of content creation and consumption should tax existing digital networks and infrastructure, driving incremental spending on both. The positions the companies found in our Digital Infrastructure & Connectivity model extremely well.
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