FOMO Is Going Around

We are 9 days away from the debt ceiling deadline. As of right now there’s no deal. Here are the effects of a breach according to Moody’s:

1 week: 1.5 million jobs lost, raising the unemployment rate from 3.4% to 5%.

2 months: 8 million jobs lost, raising the unemployment rate from 3.4% to 7.8%.

Market

Prices as of 4 pm EST, 5/22/23

Macro

President Biden and House Speaker McCarthy met again last night to continue debt ceiling discussions.

• No deal was struck but both admitted the evening’s talks were productive, with the Speaker calling them “better than any other” thus far.

• The meeting followed another letter from Janet Yellen who once again warned the Treasury was “highly likely” to run out of cash by early June.

• Meanwhile, Treasury markets are discounting at least some chance of a default: yields on 1-, 2-, 3-, 4-, and 5-month T-bills are now all higher than the Fed funds rate.

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Four Fed presidents spoke yesterday—here’s what they said:

• St. Louis’ James Bullard was the most hawkish, backing 2 more rate hikes this year to fight inflation.

• San Francisco’s Mary Daly expressed the need for caution, declining to commit one way or another.

• Atlanta’s Raphael Bostic advocated for a pause amid emerging tightness.

• Richmond’s Thomas Barkin remains unconvinced inflation has been defeated and declined to “prejudge” the June decision.

• Market probabilities for a pause next month are currently hovering around 80%.

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According to a Fed household survey, Americans’ financial well-being is declining.

• 73% of adults reported “at least doing okay financially”, down from 78% in 2021 and the lowest since 2016.

• Shares of respondents who could cover unexpected emergency expenses, had 3 months of emergency savings, and were able to pay their current bills in full all dropped.

• The percentage who reported being worse off financially than a year earlier jumped from 20% to 35%, the highest since the question was first asked in 2014 (by far).

Stocks

America’s biggest bank, JPMorgan, held its investor day yesterday–here are some highlights:

• CEO Jamie Dimon did his best Jordan Belfort impression, declining to offer a timeline about when he might be stepping down.

• Expecting a boost from its First Republic acquisition, the bank raised its net interest income forecast to $84 billion from $81 billion.

• Investment banking and trading, on the other hand, is expected to decline 15% YoY.

• Dimon warned commercial real estate loans were likely to create problems for some banks.

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Speaking of, regional bank stocks followed through on last week’s gains on Monday.

• Performance was led by shares of PacWest (+19%) after it announced the sale of a $2.6 billion loan portfolio.

• The deal is part of the bank’s strategy to pursue strategic asset sales.

• Other bank stocks enjoying outsized gains include First Foundation (+12%), Western Alliance (+10%), and Customers Bancorp (+10%).

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After 5 straight weeks of selling, hedge funds rushed into US stocks over the past 14 days.

• The pace of buying was the fastest since October.

• Nobody wants to tell their boss they were sitting on the sidelines - is FOMO kicking in?

• In terms of positioning, short positions in S&P futures are at their most bearish since 2007.

• On the other hand, asset managers are most long Big Tech since early 2022.

• According to Bloomberg’s Simon White, hedge funds are likely net long equities.

Energy

Saudi Energy Minister Prince Abdulaziz issued a warning to short-sellers:

• “I keep advising them that they will be ouching”

• OPEC+ is set to meet on June 3-4 to discuss production policy for the second half of 2023.

• Will the alliance make another surprise cut to production similar to April’s move?

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Last year, the White House sold more than 180 million barrels from the US Strategic Petroleum Reserve (SPR).

• While releases continue, it has expressed its intent to replenish reserves by 60 million barrels.

• Doing so, however, will be a challenge: early attempts to buy crude with fixed-price proposals didn’t take and now the Energy Department is attempting to think like an oil trader.

• Its next attempt will employ different pricing approaches with proposals due May 31.

Earnings

Yesterday’s highlights:

Zoom ZM: $1.16 EPS (vs. $0.99 expected), $1.1 billion in sales (vs. $1.08B expected).

• Its enterprise customer base increased 9% YoY while those generating more than $100,000 jumped 23%.

• Current quarter guidance was in line with consensus forecasts.

• The company also lifted its outlook for revenue and earnings for FY2024 above Wall Street’s estimates.

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What we’re watching today:

• Intuit INTU

• Lowe’s LOW

• Palo Alto Networks PANW

• Autozone AZO

• Agilent Technologies A

• Dick’s Sporting Goods DKS

• BJ’s Wholesale Club BJ

• Vipshop VIPS

• Williams-Sonoma WSM

• V.F. VFC

• Toll Brothers TOL

• New Relic NEWR

Top Headlines

• Default worries: Investors are shifting from US Treasury bills to bonds issued by top-rated American companies.

• S&P FOMO: Investors added $21 billion in new long positions to S&P 500 futures, outnumbering shorts by more than 9-to-1.

• Bond rush: After last year’s $332 billion of outflows, more than $100 billion has poured into fixed income funds during the first 4 months of 2023.

• Carbon credits: JPMorgan will invest over $200 million to purchase credits from carbon removal startups.

• Full access: TikTok will grant Oracle full access to its source code, algorithm, and content-moderation material.

• Responsible AI: In an article written for the Financial Times, Google CEO Sundar Pichai emphasized the importance of building AI responsibly.

• Reputation rankings: The most visible brands in America, according to 20 years of Harris Poll research.

• UK is OK: The IMF predicts that the UK will avoid a recession this year thanks to resilient demand and declining energy prices.

Crypto

Prices as of 4 pm EST, 5/22/23

• Asset flows: Digital asset investment products saw their 5th straight week of outflows totaling $32 million.

• Staked ETH: The number of ether staked in the Ethereum network has reached a record high of 22.58 million.

• Russian sanctions: The Russian Foreign Ministry has banned several high-profile industry names from crypto firms, think tanks, and government agencies.

• Taming crypto: The global securities watchdog, Iosco, is urging regulators to act more quickly and boldly on crypto markets.

• Exchanges welcome: Hong Kong’s Securities and Futures Commission (SFC) will start accepting license applications for crypto exchanges on June 1.

Deals

• Shale double down: Chevron has acquired O&G rival PDC Energy for $6.3 billion in an all-stock deal.

• Terminated: TV operator Tegna has ended its $8.6 billion merger agreement with hedge fund Standard General.

• AI funding: AI startup Builder.ai has raised $250 million in a round led by the Qatar Investment Authority.

• Recommendations: Activist investor TCS Capital Management has acquired a +4% stake in Yelp and is pushing for a sale.

• Streaming merger: Paramount+ and Showtime will combine forces starting June 27 (at higher prices).

• Meme Of The Day