Narrow Market Breadth: Not As Bad As You Think

Credit card debt hit a record $1 trillion in America. The average household carries $10,000 on their card - another record

It’s nearly impossible to build wealth when you’re paying 20% interest every month.

Market

Prices as of 4 pm EST, 5/30/23

Macro

Today, the House of Representatives will vote on the debt limit deal.

  • Both President Biden and House Speaker McCarthy are confident they have enough votes to pass it.

  • The latter, however, faces a small cohort of Republicans who would see him ousted from his position.

  • According to the Congressional Budget Office (CBO), the deal would trim government spending by $1.5 trillion over the next decade.

  • The bulk of those reductions come in the form of discretionary spending cuts.


US home prices increased for the second straight month as the Case-Shiller National Home Price Index rose 0.4% in March.

  • All 20 cities tracked by the index showed price gains.

  • This reflects the lack of supply being faced by homebuyers as owners remain reluctant to part with low mortgage rates.

  • On a year-over-year basis, prices increased by 0.7%–the smallest annual gain since May 2012.


The Conference Board’s index of consumer confidence in April dipped to its lowest since November.

  • Both current and future expectations declined, as did consumers’ assessment of current employment conditions.

  • In fact, the labor market differential—which measures those who say jobs are “plentiful” vs. those who say they are “hard to get”—fell to its lowest in 2 years.

  • This could foreshadow a slowdown in May’s jobs gains (NFP data due Friday).

  • On the other hand, consumer appetite for buying big-ticket items (cars, homes, major appliances, etc) increased, suggesting a solid spending outlook.

Consumer confidence

RSM

Stocks

Nvidia became the first-ever chipmaker to cross the $1 trillion mark yesterday, albeit briefly.

  • Semiconductor stocks are enjoying their best monthly performance in over 20 years thanks to the hype around AI.

  • A group of AI executives, however, may be pouring cold water on the market’s excitement.

  • Over 350 AI professionals—including Sam Altman and the “godfathers” of AI—signed a one-sentence statement published by the Center for AI Safety:

Mitigating the risk of extinction from AI should be a global priority alongside other societal-scale risks such as pandemics and nuclear war.


If you thought layoffs were over, think again.

  • Goldman Sachs is considering its third round of job cuts in less than a year amid a slowdown in dealmaking that has hurt revenue.

  • The move would affect around 250 employees (including senior staff) and follows a 3,200 headcount reduction in January.

  • Morgan Stanley, meanwhile, is currently carrying out a 3,000-job disappearing act of its own over the quarter.


In yesterday’s note, we pointed out the (extremely) narrow breadth beneath the surface of the market’s YTD rally.

  • As we wrote then, it’s not necessarily all bad news from here.

  • According to BMO Capital, the S&P has returned an average of 6.7% in the subsequent 6 months after outperformance by the market’s largest 5 stocks.

  • Out of 12 periods of similarly narrow breadth, BMO found that the index has only gone on to produce negative returns just one time.

relates to Being Broad-Minded Pays Off in Narrow Markets

BMO Capital Markets

Energy

When US lawmakers vote on the debt-limit deal today, they’ll also be voting on fast-tracking the Mountain Valley Pipeline.

  • As part of the deal, permits for the West Virginia natural gas pipeline would be expedited and environmental reviews curtailed.

  • The $6.6 billion pipeline is near completion but has faced several years of legal delays.

  • Pipeline proponents say the project is vital to US domestic energy security while critics argue it would undermine the country’s transition away from fossil fuels and harm marginalized communities.

Earning s

Yesterday’s highlights:

AmbarellaAMBA $-0.15 EPS (vs. $0.20 expected), $62.14 billion in sales (vs. $61.99B expected).

  • Not all chipmaker outlooks can be as bright as Nvidia’s.

  • The company guided Q2 revenue between $60-64 million, short of analysts’ forecast of $66.9 million.

  • According to CEO Fermi Wang, however, AI is in focus: “We are taking our inference AI strategy to the next level”.


What we’re watching today:

  • Salesforce CRM

  • Crowdstrike CRWD

  • Veeva Systems VEEV

  • NetApp NTAP

  • Okta OKTA

  • Chewy CHWY

  • Pure Storage PSTG

  • Donaldson Company DCI

  • CAE Inc CAE

  • Advanced Auto Parts AAP

  • Descartes Systems Group DSGX

  • C3.Ai AI

  • Nordstrom JWN

Top Headlines

  • Inflation drivers: According to the San Francisco Fed, rapid wage growth has not significantly contributed to inflation.

  • Twitter value: Fidelity says Twitter is now worth just 33% of Elon Musk’s purchase price.

  • Credit card overload: By some measures, credit card debt across households in the US has reached $1 trillion.

  • Fed takes: Cleveland Fed president Loretta Mester says there’s no “compelling” reason to wait before hiking interest rates again.

  • Contra-indicator: Cramer says the following industries are losers, act accordingly: energy, utilities, healthcare, real estate, staples, materials, industrials, and banks.

  • China recovery: Factory activity in China contracted for the second consecutive month while growth in services slowed.

  • Dimon warning: JPMorgan CEO Jamie Dimon has warned that uncertainty caused by the Chinese government could negatively impact consumer confidence.

  • Treasuries demand: As the Fed has been raising rates, US households have been big buyers of US Treasuries.

Crypto

Prices as of 4 pm EST, 5/30/23

  • Settlement: A former Coinbase COIN manager settled insider trading claims with the SEC.

  • Coinbase plea: CEO Brian Armstrong said restrictive rules in the US will drive innovation offshore to China.

  • Crypto legislation: Two new crypto-focused bills addressing CBDCs and dark web drug trafficking have been introduced to Washington.

  • Regulatory collab: Hong Kong and UAE are collaborating on regulation to attract global crypto companies.

  • Pi Network: A crypto app with 45 million users is launching a new social media app to rival Twitter.

Deals

  • Approved: Seagen stockholders voted to approve an acquisition by Pfizer for $229 per share in cash.

  • VC funding: Pear VC, an early backer of DoorDash, has raised $432 million for a new early-stage investment fund.

  • M&A expansion: Japanese Daiwa Securities plans to increase its M&A advisory revenue by 50% by expanding its presence with a focus on the US.

  • Sweetener: Glencore is preparing to increase its bid for Teck Resources to get past the current deadlock.

  • AI positioning: Chip designer Arm Ltd is looking to position itself as an AI player ahead of its upcoming IPO.

Meme Of The Day

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