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Fed Chair Powell and Costco earnings on deck, plus fresh model signals
Equity futures, especially those for the Nasdaq Composite, point to a positive market open later today. That outlook is driven by a nice pop in the shares of Micron (MU), which delivered better than expected quarterly results last night due to rising demand for…. you guessed it, artificial intelligence. Notable callouts were the strength in data center and server markets, with the company guiding current quarter revenue between $8.5-$8.9 billion compared to $7.75 billion for its August quarter and the $8.3 billion market forecast. This follow-through on this should give some additional lift to our Artificial Intelligence and Digital Infrastructure models.
Also lending a helping hand, at Meta Connect 2024, Meta Platforms (META) debuted the company’s Orion prototype mixed reality glasses, the Meta Quest 3 virtual reality headset, voice options for Meta’s AI assistant that can be bused across its various products. Whose voices you ask? Some of the famous folks are famous folks like John Cena, Awkwafina, Dame Judi Dench, Keegan-Michael Key, and Kristen Bell. Meta also showcased new AI features coming to the Ray-Ban Meta glasses, including recording or sending messages, and translating speech in real-time.
On the AI front, reports point to a potential shift at OpenAI to a for-profit company that would no longer be controlled by its non-profit board. Indications are the OpenAI non-profit will continue to exist and will own a minority stake in the company. While such a move could mean OpenAI would act like a more traditional startup, TBD if it gives rise to questions about governance and AI safety.
Eco data - August Durable Orders, 2Q 2024 GDP revisions
On the economic front, today brings the August Durable Goods Order figures, which are expected to fall 2.6% after jumping 9.9% in July. Let’s keep in mind the transportation component can be volatile month to month, which is why most will focus on the Durable Orders ex-transportation, which is expected to inch higher by 0.1% in August compared to the 0.2% decline in July.
Alongside that data set, the market will also get the final GDP figure for 2Q 2024, and it is expected to fall to 2.5% compared to the 3.1% figure for 1Q 2024. Because the market is caught between hard and soft-landing narratives for the economy, a stronger or weaker-than-expected 2Q 2024 figure this morning could alter Fed rate cut cadence expectations. However, our view is the September data coming next week will be a far greater factor than this rear-view GDP figure. Ahead of this Durable Orders report, the Atlanta Fed’s GDPNow model pegs current quarter GDP at 2.9%.
Here come the Fed speakers
Following this morning’s data, we have a wave of Fed speakers, seven in all including Fed Chair Powell, all before market trading is done for the day. While the various Fed speakers will probably share their expectations for Fed policy, the market will take its cue from Powell, who speaks at 9:20 AM ET. Because we are still relatively close to the Fed’s policy decision last week, we doubt Powell will be breaking any new ground today. Even so, the market will be trying to figure out if Powell sees another big 50-basis point cut in the pipeline or if the Fed chair is open to smaller bite sizes going forward.
Costco earnings, Adobe’s holiday forecast, Biden directs more Ukraine aid
After today’s market close, Costco (COST) will report its latest quarterly results. Leading into the report, sizing up Costco’s monthly sales reports against Retail Sales reports clearly shows the membership warehouse company taking consumer wallet share. In our view, the company remains well positioned following the stream of recent retailer comments about consumers remaining selective and choosey when it comes to their spending dollars. Let’s remember as well, that the current quarter will be the first one with Costco’s higher membership fee, which should give its high-margin membership fee revenue stream a nice bump even as the company continues to expand its warehouse footprint.
While most people think of the physical warehouse locations, Costco’s e-commerce business has been gaining ground. Setting the stage for more of that, Adobe (ADBE) published its 2024 holiday shopping forecast (see Digital Lifestyle signals below), which like other recent holiday shopping forecasts from Deloitte, points to digital shopping handily outpacing brick & mortar shopping. The reason? Consumers are embracing earlier deals promoted by retailers. That sure sounds like a nice intersection of our Digital Lifestyle and Cash-Strapped Consumer models.
Finally, President Biden directed that Ukraine receive the remaining $5.5 billion worth of American weapons and equipment previously authorized by Congress, ahead of his meeting with President Volodymyr Zelensky. That and recent reports of increasing defense spending at NATO countries are positives for our Safety & Security model.
Related: How the Fed’s Rate Cut and Triple Witching Friday Could Impact Markets