Yesterday we witnessed a sharp decline in technology stocks as evidenced by the declines in Facebook (FB), Amazon (AMZN), Alphabet (GOOGL), Netflix (NFLX) and Apple (AAPL). Regarding Apple shares, yesterday’s move lower simply adds to the recent pressure on the shares we’ve seen since the company’s lackluster September special event as investors question iPhone 8 model demand ahead of the early November launch of the iPhone X. Of course, snafus with the latest Apple Watch and MacOS High Sierra aren’t helping a company that seems plagued either a lack of vision or remaining trapped in a position until technology forces align for its next new product.
Pressure on Apple shares has overflowed and resulted in the same downward pressure on our Universal Display (OLED) shares, slipping from a high of $142 on September 19, down to a hair below $125 when the market closed last evening. We’ll continue to keep OLED shares on the Tematica Select List however, as Apple adopts its technology across other devices, and as demand from other devices (other smartphones, TVs, wearables, automotive interior lighting) climbs in the coming quarters. As a reminder, tomorrow brings the 2017 Analyst Day from Applied Materials (AMAT) and we expect bullish comments for both its semiconductor capital equipment business as well as its display business.
Other Market & FED Notes
We’ve noted that we have seen the Wall Street herd rotate sectors as of late, with water and electric utilities being strong performers of late — both part of our Scarce Resource investment theme. While the S&P 500 Volatility Index (VIX) may be near record lows, the recent performance of those safe havens signals that investors are in a wearisome mood. Another group that has performed well over the last several weeks is multinational companies, which have benefitted from the dollar’s renewed weakness in July, August and early September. We’ve seen this with our Amazon (AMZN), International Flavors & Fragrances (IFF), and Facebook (FB) shares to name a few.
More recently, however, we’ve seen the dollar rebound modestly, and with the Fed talking up several interest rate hikes in as many quarters, we are likely to see the dollar move further off early September lows. This brings Fed Chairwoman Janet Yellen’s speech this afternoon into focus. Will we get much more from Yellen on the pace of balance sheet unwinding vs. what the Fed shared last week? Probably not, but we’ll still be looking to parse her usual clear as mud words.
The expected lack of “new info” from the Fed will likely keep the market mentality fixated on the Fed’s forecasted interest rate hike timetable. We here at Tematica prefer to remain data dependent when it comes to contemplating potential Fed rate hikes. That view led Federal Reserve Bank of Minneapolis President Neel Kashkari to reiterate his view yesterday that raising rate now is a bad idea:
“When I look at the economy, I don’t see any signs the economy is close to overheating… I see no need to tap the brakes and attempt to moderate the economy with higher short-term rates.”
Realizing Kashkari is a lone voting wolf inside the Fed, odds are the herd view will continue to influence the prevailing narrative in the near-term. We’ll remain patient as that group will once again take some time to come around to how we see things.
In the short-term, a continued rebound in the dollar is likely to pressure multinational companies ranging from General Electric (GE) and Caterpillar (CAT) to the likes of Amazon, Facebook, Applied Materials, and even MGM Resorts (MGM) that are on the Tematica Select List. With this in mind, we’ll be closely dissecting the forward guidance to be had from Nike (NKE) later today and the Select List’s own McCormick & Co. (MKC), which reports this Thursday (Sept. 28).
As the herd continues to feel its way around, we’re inclined to re-test our thematic thesis on the stocks comprising the Select List, but given what we’ve seen in our Thematic Signals we have reason to believe our thematic tailwinds continue to blow. As we do this, we’ll remember this week unveils President Trump’s tax reform proposal followed by the administration’s regulatory agenda that will be outlined next week (Oct. 2), not to mention all the amped-up geo-political news between the U.S. and North Korea.
Odds are the next few weeks, will be tumultuous, but let’s remember that “fortune favors the prepared” and that’s what w we aim to be. This means looking for thematically well-positioned companies that offer favorable risk-to-reward dynamics, like the recent addition of Corning (GLW) and Nokia (NOK), as well as opportunities to scale into existing positions on the Tematica Select List.