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.

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”.

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).

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.

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.

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.

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