Nvidia (Very) Up, America's AAA Rating (Potentially) Down

Brace yourselves as NVIDIA NVDA is about to make history with one of the biggest one-day market value gains ever. Now headed for the $1 trillion market cap club. Securing its spot as the 6th most valuable public company in the world.

AI is here and it’s electrifying.

Market

Prices as of 4 pm EST, 5/24/23

Macro

Minutes from May’s FOMC meeting revealed a divide among officials regarding further interest-rate increases.

• While some participants (hawks) signaled additional firming was likely necessary, several (doves) noted that further hikes may not be needed, provided the economy continues to progress as expected.

• Yesterday, Fed Waller–in the some camp–expressed concern over the lack of progress in inflation and emphasized the need to “maintain flexibility”.

• Markets still expect a pause (now called a “skip”) in June, but odds of a 25bps increase in July have risen to nearly 50% from 33% a week ago.

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Top execs meeting this week at CNBC’s CEO Council Meeting largely believe a recession lies ahead for the US.

• The broad consensus, however, is that this recession will be different from past downturns.

• Goldman Sachs CEO David Solomon: “It’s hard to have a recession with full employment”.

• Schnitzer Steel CEO Tamara Lundgren: “Whatever this recession is, we may need a new name for it”.

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Stop me if you’ve heard this before: President Biden and Speaker Kevin McCarthy met yesterday, reached no deal, but expressed optimism.

• According to JPMorgan economist, there’s a 25% (and rising) chance the US reaches the X-date without a deal.

• In the last 24 hours, both Fitch Ratings and DBRS Morningstar warned about a potential credit rating downgrade for the US.

• The cost to protect against a default—via credit default swaps—is at its highest since 2011 while yields on short-term T-bills maturing after the X-date remain elevated.

Stocks

Meta META has begun its third and final round of job cuts of the year (of efficiency).

• So far, the company has targeted headcount reductions in recruiting, human resources, and technical roles.

• The latest round will be focused on business groups, with about 10,000 workers losing their jobs between April and May’s layoffs.

• Meanwhile, shares are up over 100% YTD and the company continues investing heavily in AI technology and virtual reality (aka the metaverse).

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Speaking of AI, Google CEO Sundar Pichai met with EU officials to discuss regulation.

• Pichai agreed to an “AI pact” on a voluntary basis to collaborate with other companies on self-regulation before official AI regulation goes into effect.

• With AI developing faster than rules, the goal is to ensure products are services are developed responsibly while lawmakers figure out how to govern them.

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According to a new poll from Gallup, stock ownership in the US is at its highest since 2016.

• 61% of US adults reported having money invested in the stock market.

• That’s up from 58% last year and well above decade lows of 52% in 2013 and 2016.

• It’s the first time ownership has risen above 60% since the Great Financial Crisis in 2008.

Energy

Despite Saudi Arabia’s energy minister hinting at cuts, traders expect OPEC+ will keep production steady at their meeting next week.

• Russia’s Deputy Prime Minister similarly downplayed the chances of further production cuts by the group, citing voluntary reductions by some countries last month.

• Meanwhile, US commercial crude stocks fell by the largest in 6 months last week, with inventories unexpectedly falling by 12.5 million barrels.

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The International Energy Administration expects solar power investment to outpace spending on oil production this year.

• This would mark the first time spending on the former outweighs spending on the latter.

• The agency expects $1.7 trillion to be spent on clean technologies while just $1 trillion goes to fossil fuels.

Earnings

Yesterday’s highlights:

Nvidia: $1.09 EPS (vs. $0.92 expected), $7.19 billion in sales (vs. $6.52B expected).

• The company blew past earnings consensus and topped revenue estimates by the most in 5 years.

• Despite a 13% YoY decline in sales, net income rose by more than 25%.

• It also beat Wall Street’s outlook for sales by more than 50%, expecting $11 billion in Q2 (vs. $7.19 billion expected).

• Shares reached new all-time highs after surging more than 25% in pre-market trading.

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What we’re watching today:

• Costco COST

• Medtronic MDT

• Toronto-Dominion Bank TD

• NetEase NTES

• Workday WDAY

• Autodesk ADSK

• Marvell Technology MRVL

• Canadian Imperial Bank CM

• Dollar Tree DLTR

• Ulta Beauty ULTA

• Best Buy BBY

• Deckers Outdoor DECK

• Burlington Stores BURL

• Ralph Lauren RL

• Restoration Hardware RH

Top Headlines

• Banking crisis: Top executives at UBS and Barclays suggest the worst of the banking crisis is behind us.

• Ackman vs. Icahn: Bill Ackman likened Icahn Enterprises to Archegos and suggested more room to the downside.

• Infrastructure hack: Microsoft has warned that Chinese state-sponsored hackers have compromised US cyber infrastructure.

• AI regulation: OpenAI warned it may pull services from the EU due to concerns over the region’s planned AI regulations.

• Presidential bid: Florida Governor Ron DeSantis officially launched his 2024 presidential campaign on a glitchy Twitter Spaces last night.

• Nikkei: With Japanese stocks at 33-year highs, Warren Buffett has more exposure to Japan than any country outside the US.

• Cruises rebound: After being half-empty a year ago, many cruise line ships are now seeing occupancy levels above 100%.

• CTA positioning: There’s a massive divergence in positioning between tech and small caps.

Crypto

Prices as of 4 pm EST, 5/24/23

• Shaq served: Process servers finally served Shaquille O’Neal over his involvement with FTX…and they did it at the former FTX arena in Miami.

• Luban: BNB Chain will undergo the Luban upgrade in June to improve network speed and security.

• COIN expansion: Coinbase continues its overseas expansion, inking a licensing deal with Bitpanda.

• Low volume: Bitcoin trading volumes have dropped to their lowest level in 2.5 years.

• Trezor hacked: A cybersecurity firm claims to have hacked into the popular Trezor T hardware crypto wallet.

Deals

• Humanoid: An AI startup, Figure, working on a humanoid robot raised $70 million in funding.

• Pet-food proxy fight: Activist investor Jane Partners is gearing up for a proxy battle with Freshpet.

• Appealed: Microsoft has appealed the UK’s decision to block its $69 billion Activision acquisition.

• Bank spinoff: Citigroup will spin off its Mexican consumer bank, Banamex, after failed attempts to sell it.

• 3D printing: Stratasys and Desktop Metal are exploring a merger that would consolidate power in the 3D printing industry.

Meme Of The Day