"Recession? Nah" - Homebuilders, Probably

The U.S. now spends more money on servicing its debt than national defense.

Let that sink in.

Market

Prices as of 4 pm EST, 5/16/23

Macro

US factory output bounced back in April.

• Industrial and manufacturing production both rose more than expected, increasing by 0.5% and 1%, respectively.

• The gains were driven by the largest jump in auto production since October 2021.

• Capacity utilization also increased to a 5-month high of 79.7%.

• On the other hand, recent ISM and regional survey data suggest manufacturing is slowing down.

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US homebuilder sentiment improved to its highest level in 10 months in May, returning to neutral (i.e. 50) for the first time in nearly a year.

• It was the 5th consecutive month of growth for the index.

• Driving the gain was a lack of existing supply and strong demand for new construction.

• The latter currently represents 33% of the former (compared to the historical average of 13%).

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After back-to-back months of declines, retail sales rebounded in April, albeit less so than expectations.

• Consumer spending accounts for roughly 2/3 of GDP.

• Sales increased 0.4% on the month (vs. 0.8% expected) as consumer spending holds steady despite rising prices and high interest rates.

• Seven out of 13 categories saw growth.

• On an inflation-adjusted basis, however, retail sales have been flat for ~2 years.

Stocks

Less than a week after announcing several AI advancements, Alphabet has launched 2 new AI-powered tools aimed at biotech and pharma.

• Target and Lead Identification Suite assists in predicting and understanding protein structures.

• Multiomics Suite helps researchers manage and analyze large swaths of genomic data.

• Both aim to accelerate the drug development process.

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Tesla held its annual shareholder meeting yesterday—these are the key takeaways:

• Former exec JB Straubel was elected to the company’s board of directors despite concerns he wasn’t away long enough to be considered “independent”.

• Elon Musk and Chairwoman Robyn Denholm were also reelected to the board.

• Shareholders rejected a proposal to prepare and maintain a publicly disclosed key-person risk report.

• They also rejected a proposal to issue a report on eradicating child labor from its cobalt supply chain.

• Musk says Tesla plans to deliver the first Cybertrucks later this year.

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BofA released its latest Global Fund Manager Survey—here are some highlights:

• 65% expect a weaker economy ahead.

• Long big tech and short US banks is considered the most crowded trade.

• Most respondents are underweight US equities.

• They are most overweight bonds, staples, and cash.

• Bond allocations are now at their highest since 2009.

Energy

The International Energy Administration (IEA) raised its global oil demand forecast to 102 million barrels per day.

• The agency points to a strong recovery in Chinese demand as the leading factor for the increase.

• Recent industrial output and retail sales data in the region, however, have fallen short of expectations.

• Meanwhile, US inventories of crude oil increased by ~3.7 million barrels last week.

Earnings

Yesterday’s highlights:

Home Depot HD: $3.82 EPS (vs. $3.80 expected), $37.26 billion in sales (vs. $38.28B expected).

• Arguably America’s most important retailer, HD suffered its worst revenue miss in over 20 years.

• The company pointed to plunging lumber prices and extreme weather as major headwinds to sales in Q1.

• It also lowered its outlook for 2023, expecting sales to fall 2-5% which would mark the first annual decline in 14 years.

• CEO Ted Decker: 2023 will be a “year of moderation”.

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What we’re watching today:

• Cisco Systems CSCO

• TJX Companies TJX

• Target TGT

• Synopsys SNPS

• ZTO Express ZTO

• Take-Two Interactive TTWO

• Sociedad Quimica SQM

• Dynatrace DT

• Wix.com WIX

• Stoneco STNE

• DLocal Limited DLO

• Top Headlines

• Debt ceiling: House Speaker Kevin McCarthy said yesterday’s meeting with President Biden was “a little more productive”.

• Figure it out: More than 140 top executives signed a letter urging political leaders to act swiftly to avoid a debt default.

• Banking blame: Former SVB and Signature Bank execs were grilled by Senators yesterday.

• Negative goodwill: UBS expects a ~$17 billion hit from its emergency takeover of Credit Suisse.

• Interactive disinformation: OpenAI CEO Sam Altman urged US lawmakers to regulate AI technology.

• Rate cuts: JPMorgan expects the Fed to lower interest rates by Q3 as the economy faces an inevitable recession.

• Venture performance: VC funds posted negative returns for 3 straight quarters last year.

• Relocating: The share of job seekers relocating for new jobs in the US reached a record low of 1.6% in Q1.

Crypto

Prices as of 4 pm EST, 5/16/23

• Crypto lending: DeFi lender Compound Finance is launching on Ethereum L2 Arbitrum.

• XRP win: Ripple has won its battle against the SEC’s attempt to seal the “Hinman Speech documents”.

• Open arms: France’s Financial Markets Authority says crypto firms looking to leave the US are welcome in the country.

• COIN expansion: Coinbase is expanding its services in Singapore as it faces regulatory pressure in the US.

• Gambling: The UK Treasury Committee says crypto assets should be regulated in the same way as casinos.

Deals

• Buyback: Sony is planning a $1.5 billion buyback of its shares in response to weak global consumer spending.

• Debt offering: Pfizer will raise $31 billion from a debt offering to fund its acquisition of Seagen.

• Fashion: Chinese online fashion giant Shein raised $2 billion in its latest round at a valuation approximately 33% lower than a year earlier.

• Sleep tight: Tempur Sealy will consolidate control in the mattress industry with a ~$4 billion acquisition of Mattress Firm.

• Technical knockout: The new combined Endeavor and WWE entity will be called TKO Group Holdings.

Meme Of The Day