We are shaping up for a potentially quiet day in the market with modest earnings reports and the usual Thursday data that are the Initial and Continuing Jobless Claims and then the EIA Natural Gas Inventories report at 11:30 a.m. ET.
While we travel back from our time at the New York Stock Exchange, if you missed our December Members-Only call from there you can find the replay here. During that event, we discussed our new AAP rating categories; more on that as well as how we sorted the existing portfolio can be found here.
While most of the day is apt to be a quiet one, it will heat up after the market close with quarterly results from Broadcom (AVGO) , Lululemon Athletica (LULU) and our own Costco Wholesale (COST) .
In light of concerns about demand as well as supply for connected devices, especially for smartphones, we'll be listening rather closely to what Broadcom has to say about its current quarter. We've seen several companies trim expectations for iPhone production levels over the last few weeks following Apple's (AAPL) recent warning, but more recent comments like the one we shared yesterday point to another round of cuts. With our new rating systems, AAPL shares are in a Holding Pattern (Three) and we plan to remain on the sidelines for now until we have a clearer picture of the demand-supply outlook. Should AAPL shares find their way to but successfully test the $125 technical level, we may be inclined to add to the portfolio's position.
Following cautious comments about the consumer earlier this week from Walmart (WMT) and Nordstrom (JWN) , we will be curious to see not only the quarterly results from Lululemon but also Costco.
With Lululemon, we'll be looking for comments on inventory levels and for confirmation of the consumer shift to digital shopping over brick and mortar.
Costco's comments about the holiday season, especially its thoughts about the consumer and inflation, its warehouse footprint plans and any mention for a future membership price increase, are what our ears will be up for.
Costco's comments on inflation could lead to some last-minute tweaking of expectations for the November Producer Price Index (PPI) report that will be out Friday before the market open. As of this morning, the consensus has headline PPI falling to 7.2% year over year from October's 8.0% reading. The view for the November core PPI also has it retreating versus October, falling to 5.9% year over year from 6.7%. More than likely that data will influence tomorrow's trading, especially if it reshapes expectations for what the Fed is likely to do next week following its monetary policy meeting.
Given the data found in the November ISM Services Index, the November Employment Report and the latest NFIB Small Business Survey, we could see tomorrow's PPI data move lower versus October but come in warmer than expected. While many continue to focus on the size of next week's likely rate hike, we continue to think the real focus will be on where the Fed finally stops hiking the fed funds rate, better known as the terminal rate. Alongside its monetary policy action next week, the Fed is expected to release its updated Summary of Economic Projections, which could give us a better sense for the terminal rate, but our thinking is a far clearer picture could come following the Fed's Jan. 26-27 meeting.
In terms of portfolio news, American Water Works (AWK) shared it will pay its next quarterly dividend of $0.655 per share on March 1 to shareholders of record on Feb. 7.
Alphabet (GOOGL) , Amazon (AMZN) , Microsoft (MSFT) and Oracle (ORCL) were awarded a total of $9 billion of cloud computing contracts yesterday by the Joint Warfighting Cloud Capability (JWCC), the successor program to the Joint Enterprise Defense Infrastructure (JEDI). The separate contracts run until 2028 and will provide the Department of Defense with enterprise-wide, globally available cloud services across all security domains and classification levels. We see this as a positive for the cloud business at our holdings, but we would caution members this was largely expected given the Defense Department named the four companies as contenders for the multi-cloud, multi-vendor contract.