With the close of last week, we are now halfway through the current quarter and, thus far, it’s been another positive one for the stock market. The Dow Jones Industrial Average and the Nasdaq Composite Index are up 4.3% to 4.5%, while the S&P 500 lags behind, but still with a gain of just under 2.5%. Of course, the thing to keep in mind, those quarter to date returns were predicated on strong performance in October, which has ceded ground during the first half of November.
There are several factors behind the market’s move lower, including disappointing developments at Dow member General Electric (GE), growing concern over the market’s valuation, and questions surrounding tax reform even after the House passed its tax reform bill. With institutional investors having multi-decade low levels of cash on the sidelines, the question is who will be able to help support the market should tax reform hit something stronger than a speed bump?
With the velocity of earnings slowing and modest economic data to be had during this shortened Thanksgiving holiday week, odds are traders will be sitting on the sidelines until we have more clarity with regard to likely tax reform. Based on the headlines coming out of Washington, this week may not be the quiet one that we tend to see around Thanksgiving.
As we shake off the turkey with all the trimmings — and probably an extra piece or two of pie — Black Friday will kick off the official start to the holiday shopping season. We’re already seeing retailers offer specials and discounts both in-store and online in an attempt to lure shoppers. Our concern is this activity will hit margins and that’s before we enter the post-holiday shopping season that tends to be littered with inventory clearing deals. From Black Friday to Cyber Monday, we’ll be eyeing the reports and we’ll be ready to share our thematic take, as well as which companies are poised to prosper and those whose destinations are in trouble.
On the Economic Front
As Tematica’s Chief Macro Strategist shared in Friday’s Weekly Wrap, “we are seeing some promising signs of growth both in the U.S. economy and internationally, but that has yet to translate into meaningful income gains.” Recent data kept the Atlanta Fed’s GDP forecast for the current quarter at 3.2%, but this week’s October Existing Home Sales and Durable Orders reports will add another layer of data to the forecast mix. When we read the Durable Orders report, we’ll be stripping out aerospace and defense to zero in on core capital goods orders, a proxy for business investment. Over the last three months that figure has grown at a modest 1.3% and if that trend continues we could see some downward revisions to current quarter GDP expectations.
As we break for the Thanksgiving holiday, the Fed will have a parting gift for us with the minutes from its most recent monetary policy meeting. While the Fed did not boost interest rates exiting that meeting, it’s comments paved the way for a December rate hike. We’ll be looking for confirmation of that as well as any comments on the Fed’s balance sheet reduction efforts. We know… scintillating reading especially when the alternative is Thanksgiving pie.
On the Earnings Front
With the Thanksgiving holiday and shortened trading hours on Friday, we will see a short burst of corporate earnings reports, which skew largely to retailers, and no investor conferences this week. Following the mixed holiday forecast from Target (TGT) last week and the upbeat outlook from Walmart (WMT), we’ll be rounding out of holiday shopping mosaic with results from
Urban Outfitters (URBN), Barnes & Noble (BKS), Chico’s FAS (CHS), DSW (DSW) and Movado Group (MOV) this week.
During the week we shared a Content is King investing thing primer on the rapidly growing e-sports with Tematica Investing subscribers, and this week we’ll be looking for confirmation in quarterly results from GameStop (GME). Candidly, we are not bullish on GameStop’s business model as we see it as the gaming version of Blockbuster Video Stores, and we all know how that turned out. Sticking with our Connected Society investing theme and adding a hefty dash of Disruptive Technologies, we’ll be listening to specialty contractor Dycom (DY) this week to confirm the burgeoning rollout of 5G infrastructure and what that means for the Tematica Investing Select List.
On this week’s podcast , we did a deep dive on the Rising Middle Class part of our Rise & Fall of the Middle Class investing theme. One aspect we talked over was the rising demand for proteins and other aspects of the food complex. With that in mind, we’ll be looking through quarterly results from agricultural equipment company Deere (DE) this week
With regard to our Safety & Security investing theme as well as active positions on the Tematica Investing Select List, Palo Alto Networks (PAWN) will be one of the reports we’ll be drilling into before the holiday.
Related: Things Underfoot In the Market That Could Cause Some Scares
Thematic Signals
Each week we look for data points pertaining to our 17 investment themes, or as we call them Thematic Signals. These signals can be confirming or they can serve to raise questions as to whether a theme’s tailwinds are strengthening or ebbing. Be sure to check out the Thematic Signals section of our website to read more about these stories and others we publish throughout the week. Here are some of the highlights we saw this week:
Connected Society: Calvin Klein partners with Amazon for tech-savvy pop-ups and Amazon Fashion
Earlier this week we shared that Lord & Taylor partnered with Walmart, and just a few days later Calvin Klein shared a new relationship with Amazon as part of its Amazon Fashion efforts. We expect to see the lines become increasingly drawn over the coming weeks as months as retailers and branded apparel companies look to leverage these two digital commerce platforms. As they increasingly embrace this aspect of our Connected Society investing theme, we continue to have a bearish view on brick & mortar retail and the REITs that invest in them. Read More >>
Connected Society, Affordable Luxury, Rise & Fall of the Middle Class: Lord & Taylor teams with Walmart to drive digital commerce sales
It’s starting to accelerate, the shift to digital commerce from brick & mortar that is part of our Connected Society investing theme, and it’s giving way to some interesting partnerships and business models. In this case, it’s Walmart, traditionally a retailer that meshes with our Cash-Strapped Consumer investing theme, partnering with Lord & Taylor, a retailer that spans our Rise & Fall of the Middle Class and Affordable Luxury themes. Both are looking to leverage the other to drive traffic and sales, but the new business model resembles the “store within a store” model being utilized by Macy’s and Dick’s Sporting Goods.
Given that Lord & Taylor will keep its own e-commerce platforms, it seems this linkage with Walmart.com is more a test-bed for Lord & Taylor, while Walmart hopes to court other retailers and branded apparel as it looks to position itself firmly against Amazon.
One way or another, odds are this is just the beginning for these kinds of linkages and tie-ups. Read More >>
Disruptive Technologies, Connected Society: T-Mobile stokes the 5G race, targeting nationwide coverage by 2020
At the Morgan Stanley European Technology, Media, and Telecoms Conference in Barcelona, T-Mobile USA’s (TMUS) Chief Technology Officer Neville Ray said T-Mobile would roll out its 5G network in the U.S. by 2020. As background, 5G is the next evolution in mobile network technology that will enable speeds to power autonomous cars, the Connected Home and other Internet of Things technologies while cutting the time to download a high-definition move to seconds from minutes.
This T-Mobile news builds on the recent news that AT&T (T) would bring its 5G Evolution service to Minneapolis by the end of 2017 as part of its plan to have the service running in 20 markets before 2018.
From our perspective, this moves the notion of 5G from an ephemeral event to one that now has an increasingly firm line in the sand. This has set a ticking clock because for those networks to launch, the network operators much first build and test their networks. This means the operators, such as T-Mobile USA, AT&T, and others both in and outside the U.S. must buy and install 5G infrastructure equipment over the coming quarters. Read More >>
Cashless Consumption, Connected Society, Disruptive Technology: Amazon moves one step closer to disrupting the grocery industry
After Amazon acquired Whole Foods, it seems that many forgot about its prior effort to disrupt the grocery industry with Amazon Go. Now the company has shared that it is close to bringing this worker-less concept that relies on its mobile app and a litany of sensors to allow shoppers to do their thing all without standing in line to pay. That sounds like a nice combination of our Connected Society, Disruptive Technologies, and Cashless Consumption investing themes. Certainly not welcome news to those grocery companies like Kroger (KR), Sprouts Farmers Market (SAFM) and a number of others look to contend with Amazon-Whole Foods. Read More >>