The stock market was sagging last week until tax reform gained momentum in Washington and that shifted the market mindset from “will we get tax reform?” to “which sectors and companies will benefit from tax reform?” This led to a shift in sentiment from technology stocks in favor of domestically focused and high-tax rate paying companies in particular. In our view, this move was a wide brush that hit companies with favorable to strong underlying fundamentals like several on the Tematica Investing Select List such as Disruptive Technologies investment theme companies Applied Materials (AMAT) and Universal Display (OLED) as well as those more deserving of being rotated out of.

Late in the week, there was considerable progress made in Washington as Congress passed a stopgap spending bill to prevent a government shutdown this weekend that keeps the government running by kicking the can to Dec. 22. In back-to-back statements, both Democratic and GOP leaders declared a meeting with President Trump as “productive” and that has us cautiously optimistic.

Also, late in the week, it was announced President Trump would share his long-awaited infrastructure proposal in “early January” in the form of a detailed document of principles for upgrading roads, bridges, airports and other public works ahead of his State of the Union address in late January. We’d note this proposal has been delayed from the third quarter of this year, but given the D+ grade of US Infrastructure by the American Society of Civil Engineers we see infrastructure rebuilding more as “when” not “if.” Over the coming weeks, we’ll be combing over investment candidates poised to benefit from such a funded proposal that meet our three-fold investment criteria.

These events, combined with the welcoming of the better than expected job creation figures in the November Employment Report, led the market to recover some ground after finishing lower during the first four days of the week. With that recapping last week, now let’s take a look at what’s coming at us in the week ahead…

On the Economic Front

On tap this week is a bevy of economic data points on jobs, manufacturing, inflation and retail sales. It’s going to be a big one, and one that could either firm up or tear down current quarter GDP forecasts by the Atlanta and New York Fed banks.

We’ll be looking at the October JOLTS report for sectors where hiring remains strained. Following this week’s employment data, we’ll be looking for what’s likely to be had next month given what we find in the NFIB Small Business Optimism Index. According to the October NFIB report, “More small business owners last month said they expect higher sales and think that now is a good time to expand, according to the October.” We saw that ripple through in Fridays’ November Employment Report, and the November NFIB findings could set the stage for the December Employment Report.

Before we get the November Retail Sales report this week, which we’ll be dissecting on several fronts — and use to put butt-kicking Costco Wholesale’s (COST) November same-store sales figures into perspective — we’ll get the latest inflation readings courtesy of the November PPI and CPI reports. The October inflation data showed a jump that marked the greatest 12-month increase for final demand since February 2012. This helped firm the view the Fed will boost rates later this month, and a further tick up will cement those prospects.

Ending the week, we get the November reading on Industrial Production, a barometer of the industrial-manufacturing economy in the U.S., and manufacturing capacity utilization. After contracting in July and August, the manufacturing economy turned up in September and again in October, and we’ll see if November makes it three in a row.

On the Earnings Front

With three weeks to go until we close the books on the current quarter, we’ll be starting to put the puzzle pieces together using the details behind several company earnings reports to do so. This week’s notable earnings will be from Adobe Systems (ADBE), Oracle (ORCL), Sanderson Farms (SAFM), and VeriFone (PAY). Inside those results and management comments, we’ll be looking for answers to the following questions:

• What are Adobe and Oracle seeing when it comes to enterprise cloud adoption over the coming months? Is the pace slowing or accelerating?
• Is international demand at Sanderson Farms protein complex jiving with what we are seeing as part of our Rise of the Middle Class investing theme?
• Are more retail locations upgrading their point of sale payment systems to include mobile payments? Comments from VeriFone should help tell the tale.

Also this week, Tematica Investing Select List and Cash-Strapped Consumer investing theme company Costco Wholesale (COST) will be reporting quarterly results this week. The company’s robust same-store sales figures are proof positive that it is fending off Amazon (AMZN) and economic data discussed by Lenore Hawkins, Tematica’s Chief Macro Strategist, helps explain why that is given the need for consumers to stretch their spending dollars. More on that down below in Thematic Signals.

Generally speaking, we here at Team Tematica are bearish on brick & mortar retail given the impact of our Connected Society investing theme. That doesn’t mean we don’t keep our eyes and ears open for fresh data points, and that has us paying attention to comments from Pier 1 Imports (PIR) this week. What was the pace of business in November and what does it see for the overall holiday shopping season?

We also have Givaudan SA, a competitor to Rise of the Middle-Class investment theme holding International Flavors & Fragrances (IFF), conducting a roadshow in Abu Dhabi this week. We’ll be looking for an update on its business as well as raw material pricing trends. We also have Honeywell (HON) sharing its 2018 Outlook Conference Call next week, which we’ll use to compare and contrast current GPD forecasts calling for growth of 2.1-2.5% while the Federal Reserve forecasts GDP in 2018 closer to 2%.

On the conference front, we have the following on tap this week, which could serve as a source of investing as well as thematic data points:

• 5th Annual Roth Capital Partners Industrial Growth and Cleantech 1X1 Corporate Access Day
• Cowen & Co. Networking & Cybersecurity Summit 2017
• 2017 Cowen Technology, Media & Telecom Conference
• BenchMark’s Micro Cap Conference

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, Cashless Consumption
We’ve been rather vocal over the disruption that has occurred due to our Connected Society investing theme but also the disruption yet to be had. We see the potential partnering of Ford and Alibaba supporting our view that the current Retailmaggaddon is poised to spread from beyond the mall and brick and mortar retail to grocery, banking and auto dealers. We do expect new business models to emerge as this happens, but candidly even we didn’t see automotive vending machines on the near-term horizon. It is a pretty slick way of fostering Alibaba’s credit card business and we have to wonder if Amazon intends to copy aspects of that strategy the way it used Singles Day as a basis for Prime Day? Read More >>

Cash-Strapped Consumer

We keep hearing about how the economy is accelerating, yet many are still struggling to make ends meet as our Cash-Strapped Consumer investing theme remains strong. Just yesterday President Trump told reporters that he believes it is possible for the economy to reach 6% annual GDP growth rate, which would be 2.6 times the average rate of growth over the past four quarters. Global GDP growth looks to be around 3.7% this year and is forecasted to grow between 3.8% and 4.0% in 2018. That all sounds great but…

As we mentioned earlier this week, we continue to see consumers under duress, a real anomaly at this stage of the business cycle and particularly odd when unemployment is at a 17-year low of 4.1% versus the 10% we experienced at the peak of the crisis. So what is happening?

Read More >>

Fattening of the Population

A friend of mine once said if you don’t put on a few pounds during the holiday season, you’re probably not enjoying yourself. I’ve “suffered” from this most years, but in 2017 Starbucks is making it even easier to do so with its Christmas Frappuccino. The limited edition beverage packs a whopping 420 calories and 50 grams of sugar – that’s 1/4 cup of sugar in a 16 fluid ounce beverage. No wonder it goes down easy-peazy, but then again “a moment on the lips, forever on the hips” means this holiday beverage and ones like it will keep our Fattening of the Population investing theme in vogue over the coming quarters.