Centerfin Collective Weekly

Weekly Update June 14, 2024

Latest inflation, jobs data, and Fed meeting, Stock market hits all-time highs, Apple's AI strategy

Inflation, Jobs and Fed meeting

This week the Consumer Price Index (CPI) and the Producer Price Index (PPI) offered us an update on the inflationary picture.  Both came in lower than expected.  CPI on a 3-month annualized basis came down to 3.3% from from over 4% last month.  PPI, was actually down 0.2% month over month, with goods showing even more deflation than services which remained positive.  Initial jobless claims rose to 242,000, the highest since August 2023.  The Fed met and agreed on no action at this time.  Their forecast of cuts for 2024 declined to just 1 from the prior 3.  They raised their year-end target for inflation to 2.6% from 2.4%.

  • While the numbers themselves are less important, the trend of inflation is down
  • The higher jobless claims show a slight weakening in the job market, and supportive of rate cuts
  • While the Fed lowered their rate cut estimates, all of the data has confirmed the likely direction going forward is lower
  • Timing and magnitude is less important than direction
  • Lower rates are supportive of the economy and the stock market

Stock market at all-time highs

Continued to be led by the stock market darling, NVDA, the broader stock indices made new highs this week.  This week Apple joined the party.   The breadth of the stock market remains unhealthy, with gains represented by only a small minority of the biggest companies.  However, lower rates in our future, and continued positive economic growth are supportive of the both earnings and stock prices.

  • With the stock market making all time highs, many have begun to sound the alarm that stocks are too expensive
  • While not cheap on a historical basis, they are also not in bubble territory
  • With the overall forward P/E In the low 20's there is a lot of dispersion of valuations based on market cap and industry
  • Large caps are trading at very high P/Es while small caps at much more reasonable P/Es
  • Earnings continue to grow, supported by a large fiscal deficit and lower trending rates
  • The direction of the market going forward will depend on whether smaller cap companies multiples expand (and the market goes higher) or larger cap companies multiples contract (and the market goes lower)

Apple's AI strategy

This week, Apple hosted their much anticipated WWDC conference, showcasing their latest technology.  This particular conference was much anticipated as it was expected that Apple would finally announce their AI strategy.  Apple disclosed that they would be integrating the latest AI models on device (beginning with the iPhone 15 Pro) as well as on the Personal Privacy Cloud.  The AI will be incorporated into their existing apps, beginning with Siri.  The stock was up significantly on the news, and is now up over 20% in the last month.

  • Apple has clearly taken a privacy oriented approach for their AI strategy
  • Making AI models available on device is unique and potentially a gameplan for others
  • Incorporating it into existing apps, beginning with Siri, is makes Siri much more useful than before
  • With 1.5 bn active devices in the world, even a small amount of participation will drive adoption of this technology
  • The stock has rocketed significantly higher because AI will only be available on iPhone 15 Pro and later model
  • This should drive an upgrade cycle Apple has struggled with given lack of differentiation in recent years

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