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WEEKLY ISSUE: Nike offers several points of confirmation; Boosting two price targets

WEEKLY ISSUE: Nike offers several points of confirmation; Boosting two price targets

Yesterday, we received the first of what is likely to be quite a bit on potential tax reform. If the efforts we’ve seen pertaining to repeal and replacing Obamacare are any indication, tax reform will take some time and call for reaching across the aisle. We’re cautiously optimistic such reform can take place in a lasting fashion as it would help give a boost to disposable incomes, which would be a boon to the consumer spending led U.S. economy. We’ll have more on this as it develops as well as implications of other happenings inside the Beltway, from more barbs with North Korea to President Trump’s regulatory reform overview to be shared next week.

 

Making some adjustments to the Tematica Investing Select LIst as we close the quarter

As the new tax policies are put forth and put under the microscope, we will soon close the books on September and 3Q 2017. With a few days left in the current quarter, the S&P 500 is up 3.3%, and we’ve had a number of positions ranging from AXT Inc. (AXTI), USA Technologies (USAT), International Flavors & Fragrances (IFF) and Facebook (FB) handily beat that index. Some of our more recently added positions, including this week’s Corning (GLW) and last week’s LSI Industries (LSI) have dipped along with the market these last few days, but our outlook for both remains undiminished.

We have seen some former stalwarts, like Amazon (AMZN) and Alphabet (GOOGL) underperform over the last few months, but we’re heading into the seasonally strongest time of the year for these two companies – we’ll continue to keep both on the Tematica Investing Select List. The same goes for Starbucks (SBUX) as it rolls out its pumpkin flavored beverages and its peppermint mocha alongside other seasonal favorites.

Our price targets remain as follows:

  • Alphabet (GOOGL) — $1,050
  • Amazon (AMZN) — $1,150
  • AXT Inc (AXTI) — $11
  • Corning (GLW) — $37
  • Facebook (FB) — $200
  • LSI Industries (LYTS) — $10

 

We are boosting our price targets this morning on International Flavors & Fragrances and USA Technologies as follows:

  • Raising our IFF price target to $150 from $145;
  • Increasing our USAT target to $6.50 from $6.00

 

These increases offer additional upside, but not enough to warrant subscribers committing new capital at this time. Rather subscribers should continue to own these positions to capture incremental upside and in the case of IFF its dividend stream.

 

Now let’s step back and take a wider view

Our position has been and remains that we are likely to see the recent bout of volatility continue as we close the books on the third quarter of 2017 and roll right into earnings season. That reporting activity will come to a head just as we get the bulk of economic data for the month of September, the proverbial icing on the 3Q 2017 GDP cake. Based on the hurricanes, odds are this data will be a bit wobbly, to say the least, and odds are we will see more GDP revisions for the three months ending in just a few days. While some may look through the economic data, the quarterly results from Darden Restaurants (DRI) earlier this week and the subsequent drop in its shares tell us the market has yet to fully price in the impact of the hurricanes.

Here’s the thing – this could lead to the stock market retrenching from current levels, and in our view letting some of the froth out of the market is a good thing. Candidly, with the market trading near 19x expected earnings – head and shoulders above the 5- and 10-year averages – it begs the question as to how much additional upside is to be had?  This is especially true for investors that are only now returning to the market.

Our strategy for the near-term will be to focus on those companies that have strong thematic tailwinds and whose shares have a more than favorable risk-to-reward tradeoff. This could be in new positions like the ones we’ve added over the last 10 days or it could be in existing ones that come under pressure this earnings season. We always like the former, but the latter is also welcome if it allows us to improve our cost basis for the long-term.

Now, let’s dig into what Nike said last night in its quarterly earnings results – the skinny is, it was reinforcing on several levels for our themes as well as our recent comments on the dollar. Here we go…

 

What’s Nike telling us this morning?

Last night athletic footwear and apparel company Nike reported better than expected quarterly results, but the shares are trading off this morning. Sifting through the results, we see the 3% decline in North American sales as offering credence to our Cash-Strapped Consumer theme, while the 9% growth year over year in China, as well as the 5% year on year improvement in Asia-Pac/Latin America for the company, reflects our Rise & Fall of the Middle-Class thematic. That mix brought Nike’s international business to more than 55% of its overall revenue, and yes during the earnings call last night the company conceded that it has indeed benefitted from the weakening dollar during the last several months.

When it offered its outlook, however, Nike quickly called out that its expected margin contraction with “FX continuing to be the single largest driver.” Yesterday we shared our view the rebounding dollar could present a renewed headwind as the investing herd adjusts it view to incorporate the Fed’s interest rate hike forecast and we see that comment by Nike as confirmation. In addition to the near-term post-hurricane economic slump, this is potentially another reason we could see earnings expectations get reset in the back half of 2017 in the coming weeks.

We’ll look for more confirmation today during Applied Material’s (AMAT) 2017 Analyst Day and tomorrow when McCormick & Co. (MKC) and reports its quarterly earnings. As a reminder, we expect Applied to deliver a favorable demand picture for both its semiconductor as well as display capital equipment businesses, with the former benefitting from ramping demand in China. With regard to McCormick, consensus expectations have the company delivering EPS of $1.05 on revenue of $1.18 billion for the August-ending quarter. As we’ve all seen of late, missing expectations by a penny or two these days is likely to lead to a 4%-8% drop in the share price, and should that happen with MKC shares we’re inclined to scale into the position near or below our original cost basis of $91.80 on the Tematica Investing Select List.

  • Our price target on Applied Materials (AMAT) shares remains $55
  • Our price target on McCormick & Co. (MKC) shares remains $110

The Impact of the Nike — Amazon Deal

Turning back to Nike’s earnings conference call, heading into it, one of the things we wanted was more color on was the company’s invigorated relationship with Amazon (AMZN). We were not disappointed. During the call, even we were somewhat surprised by how blunt Nike was about the pressures facing U.S. retail when it said:

“…a developed market like North America must embrace change to its legacy retail infrastructure. As the leader, we’re fully committed to energizing and growing the marketplace through both our own NIKE Direct businesses and with strategic wholesale partners… over the past 90 days, it has become increasingly evident to all that the North America marketplace is undergoing significant transformation. Several quarters ago, we said that the U.S. retail landscape was not in a steady state, but rather would continue to be disrupted by the accelerating consumer shift to digital and more personal brand experiences… those shifts are now profoundly impacting the more undifferentiated dimensions of retail, resulting in store closures, bankruptcies, and a promotional environment… We’ve proven, I think, through our ability to create some real great success with other consumer-oriented digital partners like Tmall and Zalando that there isn’t a real opportunity here, and we’re excited about where that can go with Amazon (AMZN).”

In our view, those comments sum up the impact on brick & mortar retail that is being had by our Connected Society investing theme. Odds are, Nike is only one of the initial branded apparel companies that will look to leverage Amazon’s logistics and related infrastructure, and this keeps up long-term bullish on AMZN shares.

  • Our long-term price target on Amazon (AMZN) shares remains $1,150.

We also clearly heard Nike is embracing several aspects of our Disruptive Technology theme when it said, “…we target doubling our direct connection to consumers, we are ramping up investment in digital capabilities ranging from data science and analytics to machine learning to augmented reality to image recognition and personalization.”

The only thing better than a company riding one of our investment tailwinds is when it is riding two or more. Over the last three months, NKE shares have underperformed the overall market falling nearly 2.5% vs. the S&P’s 3.3% climb. As the investing herd digests Nike’s comments and the shares drift lower, we’ll revisit the potential upside and downside to be had over the coming 12-18 months. If it’s compelling, we’ll be back with more on this Rise & Fall of the Middle-Class company that is looking to leverage our Connected Society and Disruptive Technology themes.

 

Revisiting Position Ratings as the Stock Market Grinds Higher

Revisiting Position Ratings as the Stock Market Grinds Higher

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Since our last issue, the stock market continued to move higher on the news that President Trump will soon be sharing his tax overhaul plan and Fed Chairwoman’s Yellen’s congressional testimony yesterday. We review Yellen’s comments below in greater detail, but the point is the Fed, in aggregate, sees enough oomph in the economy to keep its stated goal of up to three rate increase this year in the mix. Candidly, we didn’t expect Yellen to deviate from the script given the next Fed meeting is still several weeks away, and far more data will be had ahead of it.

With the market climbing, we had a number of strong performers on the Tematica Select List, including recently added Disruptive Technology company Nuance Communications (NUAN) and  Safety & Security play PureFunds ISE Cyber Security ETF (HACK). Both of those remain Buys at current levels. Several other positions are closing in fast on their respective price targets. Last week we trimmed back the position in Costco Wholesale (COST) and reduced it to a Hold from Buy. We’d note that’s a true Hold, not to be interpreted in the herd mindset as a loose Sell recommendation. We continue to see Costco benefitting from our Cash-strapped Consumer theme and its plan to open additional warehouse clubs, which boosts higher margin membership fee income.

Similarly, this morning we are reducing our ratings on both Universal Display (OLED) and PowerShares NASDAQ Internet Portfolio ETF (PNQI) from Buy to Hold. Both have enviable runs, the former as more talk of Apple’s next iPhone iteration heats up and the potential of OLED screen and the latter given the moves we’ve enjoyed in our Facebook (FB) and Alphabet (GOOGL) shares. As we adjust these ratings, we’re also going to layer in stop losses as well:

  • We will set the OLED stop loss at $60, which ensures a gain of at least 13 percent.
  • And set a stop loss at $88 for PNQI shares, which ensures a 5 percent gain.

Positions that we’ll be watching closely as they move closer to our price targets include AMN Healthcare (AMN), Facebook FB), Alphabet (GOOGL) and Disney (DIS) shares.

 

What’s all the Yellin’ About Yellen?

As we mentioned above, yesterday Fed Chairwoman Janet Yellen began her two day session in front of Congress for her semiannual testimony on monetary policy. Last night Tematica Chief Investment Officer, Chris Versace, joined CGTN’s Global Business to discuss the testimony, which was very much a non-surprise given the Fed Chair is not likely to tip the Fed’s policy hand in between meetings, particularly when we have ample economic data ahead and we’ve yet to get the particulars on several Trump policies. In her prepared speech to the Senate Banking Committee yesterday, Yellen said the central bank can continue to raise interest rates slowly although it would be “unwise” to wait too long. Pretty much more of the same if you ask us.

Over the last few months, the pace of manufacturing activity has picked up as evidenced by the monthly ISM manufacturing data and manufacturing PMI metrics from Markit Economics. And while it has us thinking another hike is in the cards, we agree with Yellen that with little meat on the Trump policy bone as yet, the Fed might hold out until more specifics are shared before boosting rates. This also means much more economic data to factor into their economic group-think. Odds are this means a rate hike is more likely at the May FOMC meeting than at the March one.

Today Yellen takes the stage in front of the House Financial Services Committee, and while it’s a bit mean to say we do tend to get a hearty chuckle out of watching some of those folks ask questions they don’t really understand. That good fun aside, we don’t expect Yellen to deviate from the Fed script anytime soon.

Updates, Updates, Updates

Over the last few days, there were several noteworthy items for a few of our Tematica Select List holdings. The following is a roundup of those developments.

The Walt Disney Co. (DIS)    Content is King

Disney raised admission prices for U.S. theme parks, by as much as $5 for certain one-day tickets at the Magic Kingdom theme park in Orlando and Disneyland. The cost of a regular ticket at the Magic Kingdom, effective yesterday, is now $115, while the same at Disneyland is now $110. The $124 peak price at Magic Kingdom, which includes many summer days and holidays, is unchanged.

As a consumer, we may cringe at the Disney’s ticket prices, but there is no denying its parks remain a key attraction, and new exhibits/rides, such as Frozen and eventually Star Wars, will only serve to keep people coming. From an investor perspective, price increases like these tend to drive margin expansion and profits, and that’s something we certainly like.

  • Our price target on Disney remains $125, and we continue to rate DIS shares a Buy. 

 

AT&T (T)  Connected Society

AT&T competitor Verizon (VZ) announced it was returning to unlimited data plans, in part to combat Sprint (S) and T-Mobile USA (TMUS). Typically, there tends to be a herd mentality when such programs are introduced, which means we’ll be watching to see if AT&T joins the fray — and if so, how the company tiers its product offering.

Also with AT&T, when asked about the pending merger with Time Warner (TWX), CEO Randall Stephenson said, “We still think we’ll be closed by the end of the year.” That matches recent comments from Time Warner, and likely means AT&T shares will be somewhat rangebound until the proposed merger clears its review by the Department of Justice. Time Warner shareholders will meet today to decide on the company’s proposed $86B merger with AT&T — a “yes” vote is expected.

  • We continue to rate T shares a Hold, with a $45 price target. All things being equal, we’d look to revisit our rating on the shares below $40.
Amazon (AMZN)    Connected Society

As it relates to our position in Amazon, over the weekend there was news that FedEx (FDX) has launched FedEx Fulfillment, a logistic network for small and medium businesses. Given the accelerating shift to digital commerce (one of our key investment pillars for AMZN shares), it comes as little surprise that FedEx would seek to replicate Amazon’s Fulfilled By Amazon (FBA) business. For FBA transactions, Amazon receives a portion of each sale, but could, at the same time, be competing with the vendor.

The differentiator, in our view, is Amazon’s Prime service, which offers “free” two-day delivery for the shopper, and a growing list of items/services. Given the overall shift to digital commerce, odds are this rising tide will lift several boats, but to us, the real question is how vendors will offset shipping costs paid by shoppers. If they stick it to shoppers, this effort by FedEx could be more sizzle than steak.

 

AMN Healthcare (AMN)    Aging of the Population

The December JOLTS report showed yet another month-over-month increase in health-care and social assistance jobs, which led to a 12 percent increase in December 2016 compared to December 2015. Meanwhile, hiring levels in December remained relatively unchanged, up only 2.1 percent year over year.

In our view, this confirms the difficulty in finding quality staff, which bodes well for AMN’s business. Longer term, by 2020, the U.S. is expected to need 1.6 million more direct-care workers than in 2010, which equates to a 48 percent increase for nursing, home-health and personal-care aides over the decade, due primarily to the aging of 78 million baby boomers.

Our intent remains to nibble on AMN shares closer to $35 to build out the position at better prices. AMN will report its quarterly earnings tomorrow (Feb. 16) and consensus expectations call for EPS of $0.54 and revenue of $476.4 million.

  • We have a $47 price target on AMN and at current levels, that leaves 21 percent upside; as such we will look to revisit the rating and the price target after the company’s earnings announcement.

 

Dycom Industries (DY)  Connected Society

Our shares of this Connected Society infrastructure play rose more than 2 percent since last week following the news that CenturyLink’s (CTL) 2017 capital spending will be $2.6 billion vs. $3.0 billion in 2016. While overall spending is ticking down, on its earnings call CenturyLink management shared that its “broadband investments for 2017 are expected to actually be a little higher than 2016 levels.” Combined with 2017 capital spending plans for AT&T, Verizon, and Comcast, it looks like total capital spending on broadband and wireless will be up modestly year over year with a greater portion of spending on network capacity and new technologies (5G, Gigabit fiber).

We continue to see Dycom as a prime beneficiary of that wireless and wireline capital spending. We are going to sit tight and be patient with the position given our view that, worst case, it’s only a matter of time for next-generation network technologies to be deployed.

  • We rate Dycom shares a Buy with a $115 price target.

 

International Flavors & Fragrances (IFF) Rise & Fall of the Middle Class

After today’s market close, IFF will report its December quarter earnings. Consensus expectations have the company delivering EPS of $1.16 on revenue of $752.3 million. As we’ve shared previously, flavor and fragrance competitor results set a sound footing for IFF’s quarterly earnings that will be reported this week (Feb. 15).

We remind subscribers that given IFF’s international exposure, currency is likely to weigh on its December-quarter results as well as its near-term outlook. But, as we have said before, we see that largely reflected in the share price over the last few months.

  • We continue to see ample upside to our $145 price target over the coming quarters fueled by rising disposable income, particularly in the emerging markets, but also from the shift in consumer preferences to natural/organic flavors.

 

Nuance Communications (NUAN)  Disruptive Technology

Following solid December-quarter earnings last week, shares of this voice technology company rose more than 6 percent over the last several days, bringing our return in the shares to roughly 9 percent. In our view, the performance in the most recent quarter shows that despite all the headway we are hearing about Amazon’s (AMZN) Alexa voice digital assistant and similar offerings from Alphabet (GOOGL), there is ample opportunity in this expanding voice technology market for Nuance and its offerings to the health-care, mobile/auto, enterprise and imaging markets.

During the conference call Nuance shared that while there has been growing interest in voice interface technology in the last few years, the arrival of Amazon and Alphabet products has accelerated the pace of investment across several Nuance customer verticals. These opportunities along with Nuance’s expanding solution set, which includes artificial intelligence and analytics, bodes well for the company’s competitive position in the coming quarters.

Longer term, Tractica forecasts total voice digital assistant revenue will grow from $1.6 billion in 2015 to $15.8 billion in 2021. That is also likely to put Nuance on the M&A contender list for those larger entities that need to expand their voice technology capabilities.

  • Our price target on the shares remains $21 and our rating a Buy. All things being equal, the line at which we will revisit that rating is around $19

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As the market scales new heights, we review our current holdings

As the market scales new heights, we review our current holdings

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Over the last few days, we’ve been attending the Inside ETF conference in warm and sunny Hollywood, FL. While we were focused on the latest developments in the ETF space, we’ve kept one eye on the markets and the renewed climb in the stock market, with the DOW tipping over the 20,000 mark for the first time in history just this morning.

With yesterday’s close both the tech-heavy Nasdaq composite index and the S&P 500 powered to new all-time highs amid news that President Trump is already getting down to business, the domestic manufacturing economy perked up further in January and the continued mixed bag of December quarter earnings.

As we shared in this week’s Monday Morning Kickoff, this is the first full week of the year that teems with both data and earnings, with the latter escalating as the week goes on and on into next week. Toward the end of the week, we get the first print on 4Q 2016 GDP and we close it out with the start of Chinese New Year. As that holiday begins, we’ll be looking for confirming points for our Affordable Luxury, as well as Rise & Fall of the Middle-Class themes.

This week we have four positions on the Tematica Select List reporting – Cash-strapped Consumer company McCormick & Co. (MKC), Connected Society player AT&T (T), Guilty Pleasure company Starbucks (SBUX) and Alphabet (GOOGL), which resides in our Asset-lite Business Model investing theme. This morning McCormick reported is 4Q 2016 results, and despite the impact of currency, which was expected given the company’s geographic mix, we found the results rather favorable and the same can be said for the outlook over the next year – more on that below.

After today’s market close, AT&T will share its full results for the December quarter. Last week the company pre-announced several metrics for its December quarter, but yesterday Verizon’s (VZ) results fell short of Wall Street expectations. As part of our monthly position review below, we’ve laid out some of those metrics as well as shared reporting dates for those companies that have made their reporting dates known. That’s right, today is the last Wednesday in January and it’s time to take stock (pun intended) of the positions on the Tematica Select List.

This week’s issue is jammed packed, with updates on the 15 of the holdings in the Tematica Select List along with our current ratings and guidance on each position. Given the length, we recommend you download the full issue by either clicking on the download button below or simply clicking here.

DOWNLOAD THIS WEEK’S ISSUE
The full content of Tematica Investing is above; however downloading the full issue provides detailed performance tables and charts. Click here to download.

A Wait-and-See Approach as Trump Inauguration and Earnings Cocktail Unfolds

A Wait-and-See Approach as Trump Inauguration and Earnings Cocktail Unfolds

DOWNLOAD THIS WEEK’S ISSUE
The full content of Tematica Investing is below; however downloading the full issue provides detailed performance tables and charts.Click here to download.

As you sit down and digest this latest issue of Tematica Investing, you’ll notice it’s a tad shorter than the usual 6-10 pages that we fill to the brim. On the one hand, we’re inclined to say “you’re welcome,” but the reality is with the market rangebound over the last 20 plus days, the presidential inauguration about to take-over the news cycle, the velocity of earnings reports about to pick up, and Eurozone drama likely to re-emerge in the coming days, we’ve opted to see how things unfold over the next several days before making any new moves with the Tematica Select List.

That said, the thematic tailwinds are still blowing for a number of our positions with a “Buy” rating, including: Facebook (FB), Nuance Technologies (NUAN), McCormick & Co. (MKC), Dycom Industries (DY), Universal Display (OLED), CalAmp Corp. (CAMP), United Natural Foods (UNFI), Starbucks (SBUX) and International Flavors & Fragrances (IFF).

With the market move over the last several weeks, we’d recommend subscribers continue to hold their positions in AT&T (T), Costco Wholesale (COST), Disney (DIS), Alphabet (GOOGL) and Amazon (AMZN), but wait for a pullback before adding any more capital to those positions. For new subscribers that means we’d recommend you watch from the sidelines for now on those positions.

 

Is the Trump Rally Over as Investors Keep the Markets Range Bound Since the New Year?

Since last week’s Tematica Investing, we’ve seen the overall stock market little changed, with the Dow Jones Industrial Average down slightly, the S&P 500 essentially flat and the Nasdaq Composite Index up a tick.

range-bound index

We’ve had a number of favorable moves on the Tematica Select List, with Facebook (FB) climbing more than 2 percent and Amazon (AMZN) up more than 1.5 percent with favorable moves in International Flavors & Fragrances (IFF), AT&T (T), Costco Wholesale (COST) and Universal Display (OLED) were had. Several Tematica Select List positions moved relative sideways during the week, like Alphabet (GOOGL) and Nuance Communications (NUAN), but we see that as treading water ahead of the earnings report deluge.

As the market braces for the deluge of fourth quarter earnings announcements, we continue to find confirming data for our active positions. Case in point, reports that smartphone vendors are concerned Apple (AAPL) could “monopolize OLED supply capacity for this year’s iPhone 8,” and are looking to secure organic light emitting diode capacity fits with our thesis and bodes well for our Universal Display (OLED) shares.

Another, even though we just added Disruptive Technology theme company Nuance Communications (NUAN) to the Tematica Select List last week, we continue to hear about new voice-enabled applications like the one from Adobe Systems (ADBE) called “intelligent digital assistant photo editing” that is more simply put a voice-controlled photo editor. We have to admit, we are rather excited for that one assuming it helps reduce the trial and error effort to touch up photos and get rid of all those red eyes.

As we mentioned above, we are preparing to drink from a firehose-like deluge of earnings announcements this week and the next few. As evidenced by what we’ve seen thus far from JPMorgan Chase (JPM), Bank of America (BAC), PNC Bank (PNC), United Continental (UAL), WD40 (WDFC), CSX (CSX) and Gigamon (GIMO) it’s going to be a rather mixed bag of reports over the coming weeks. Once again we’re seeing earnings misses relative to expectations lead to falling stock prices. Not a bad thing considering how far and how fast the stock market has jumped since early November, especially if you’ve been a prudent investor like we have been these past several weeks. During that time we added Rise & Fall of the Middle Class McCormick & Co. (MKC), Facebook (FB) as our latest Connected Society play and last week Nuance Communications (NUAN) given its disruptive voice technology.

While we could point out that all three have moved nicely higher, especially Facebook, which certainly has us feeling pretty good, it’s the opportunity to circle back to the ones that got away that has us rather excited this earnings season. It’s not that we want bad news, but rather the opportunity to buy well positioned, thematically driven businesses at better prices. That’s how we added Facebook shares to the Tematica Select List — we knew the company was a key player in our Connected Society investing theme, but we waited until we had a compelling risk-to-reward tradeoff in the share price.

This reminds us of one of “Uncle” Warren Buffet’s most used sayings, “Price is what you pay. Value is what you get.”

We suspect there will be far more value to be had in the stock market over the next few weeks compared to the last several as December quarter earnings kicks into gear. As we’ve shared in the last several issues of The Monday Morning Kickoff, expectations have been running high, but recently more investors have been scratching their heads as they put the economic reality puzzle pieces together and reassess what is “expected.” Making this even more challenging is we have the Volatility Index near its lowest levels in over a year. Looking at the chart below, the words “reversion to the mean” ring in our head.

What this tells us is should the news turn to something less than expected, we are bound to see a far more bumpy time in the market than the smooth sailing we’ve seen since early November.

 

President-elect Trump’s Tweets and Interviews Suggest a Bumpy Ride 

Unless you live under a rock or are stuck under a very large piece of furniture with no access to a TV or the internet (yes, the internet has become so ubiquitous that it now lowercase), you know this week also marks the presidential inauguration, which will dominate headlines over the next few days. While we will watch the events of the week and listen to the speeches and confirmation hearings for clues as to what’s to come from the new Trump administration, we won’t be shedding a tear as we move past the event and onto the work that needs to be done.

As that happens, we also hope that President Trump rethinks his Twitter (TWTR) usage, but not necessarily for the same reasons as the media. While we like the push to bring jobs back to the US and put a more effective healthcare program in place, as investors we are not fans of the policy-by-bullhorn we have seen.

What makes this even more challenging is we have yet to receive a holistic view on what President-elect Trump’s policies will be, and this “keep them guessing” approach of one-off pronouncements may be good for his intended deal making, it’s added a layer of uncertainty for the stock market, and as we know the market doesn’t like uncertainty.


As we’ve seen from president-elect Trump’s tweets and interviews, his words have the potential to be very disruptive to the investment playing field:

  • Earlier this month, close to $25 billion was shaved off the value of the S&P 500’s top nine pharmaceutical companies in a matter of minutes, following President-elect accusing them of “getting away with murder.”
  • Last week following a newspaper interview with President-elect Trump in which he warned he would impose a border tax of 35 percent on vehicles imported from abroad to the US market, German carmaker stocks sold off sharply.
  • The US dollar slumped to a seven-week low against Japan’s yen late Tuesday, and continued to trade lower against a slew of currencies early this morning after President-elect Trump said that the buck was “too strong”. In an article in The Wall Street Journal, Mr. Trump said the strength of the US dollar against China’s yuan “is killing us.”

 

Amidst All This Uncertainty, We’re Taking a Wait and See Approach 

We’ve encountered many disruptions in the past and odds are these current events won’t be last. Over the last few years, we’ve seen earnings season become a greater source of stock price volatility — miss EPS expectations by a penny, and we now see share prices fall 10-20 percent, far greater than the single digits selloffs that had been the norm. These tend to be short-term disruptions that give way to market forces, which means that as we continue to focus on thematic fundamentals, we’ll be vigilant for opportunities presented by wide swings in stock prices.

With this in mind, we’re holding off making any moves with the Tematica Select List this week as we instead digest company comments regarding the tone of the economy, impact of the dollar on their business outlook and of course the strength of our thematic tailwinds.

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The full content of Tematica Investing is above; however downloading the full issue provides detailed performance tables and charts. Click here to download.