A daily market update from FS Insight — what you need to know ahead of opening bell

“Three things in human life are important: the first is to be kind; the second is to be kind; and the third is to be kind.” ― Henry James

Overnight

TikTok sues to block U.S. ban (WSJ)

Biden administration revokes export licenses that allow Intel and Qualcomm to supply Huawei with semiconductors (FT)

New treatments for sickle cell disease are being rolled out in the U.S. and U.K. (Semafor)

FDIC investigation finds culture rife with sexual harassment, discrimination (WSJ)

BlackRock lays off employees as part of a reorganization of its municipal market division (BB)

U.S. Postal Service must track serious trucking crashes under new bill (WSJ)

Tesla must detail driver warnings, miles driven with Autopilot, says regulator (WSJ)

SECs Gensler slams media for ‘outsized’ focus on crypto (MW)

European airline shares slump on price warning from Ryanair CEO (MW)

Walt Disney beat Q2 earnings on narrowing streaming losses but forecast weakness in its entertainment D2C unit causing shares to fall ~10% (CNBC) 

Reddit jumped ~14% after beating Q1 revenue estimates and forecasting better-than-expected Q2 revenue on recovering digital advertising (CNBC) 

Rivian fell ~6% after reporting a wider-than-expected Q1 loss and reiterating FY production forecast well below analyst estimates (RT) 

Dealmakers eye all-stock deals as U.S. rate cut hopes fade (RT)

Wall Street bonuses expected to rise as deals return (RT)

Companies are seeing best earnings since 2022 (YF)

Gen Z is leaning hard on credit cards (WSJ)

PE to soon be allowed to buy up to 30% stakes in NFL teams (BBG)

Goldman expects buybacks to drive stocks higher in Q2 (BBG)

JPMorgan, CICC, Citic, cut IB jobs in China as deals stall (RT)

PwC and EY hit with fines over LCF audit failures (FT)

ETF manager WisdomTree facing a new proxy fight (FT)

Goldman names ex-Dallas Fed chief Kaplan as vice chairman (RT)

Fitch downgrades NYCB to ‘BB’ (RT)

Uber’s European rival Bolt is expanding in the U.S. (BBG)

Panera discontinues ‘charged’ drinks (BBG)

Microsoft expanding a data-center complex at Wisconsin site where a Foxconn plant flopped (MW)

New launch date for Boeing’s Starliner mission now targeted for Friday (UT)

The office-market meltdown comes for 40 Wall St., a prized, iconic building (WSJ)

Private equity firms circle Peloton, gearing up for a potential buyout (CNBC)

High-tech trading firms race to grab bond market turf (BBG)

Putin sworn in for fifth term as president, tightening his grip over Russia (Semafor)

Out of its (criminal) element, Italy’s mafia turns to white-collar crime as murder, extortion fall out of favor (RT)

Russian court allows seizure of $13 million of JPMorgan, Commerzbank assets (RT)

Niger is expected to export its first shipment of oil, part of a $400 million commodity-backed loan agreement with China’s CNPC and a lifeline for Niger’s beleaguered junta, which took power in July, severing ties with ex colonial administrator France and long-time ally the U.S. (Semafor)

Members of Kenya’s Maasai pastoralist community clash with a major carbon project that sold credits to Meta, Netflix et al, saying it’s disrupting their ways of life, denying them access to their ancestral land (Semafor)

Nigerian fintech startups providing online-only banking services warn customers that trading cryptocurrency will lead to account closures, possible reporting of traders to law enforcement (Semafor)

The European Investment Bank mulls an investment of $50 million in a fund by Quona Capital, a VC firm invested in over a dozen African startups (EIB)

Energy multinational Shell will exit its South African retail, transport, and refining operations following a business-wide review (DM)

Rivals Uber Eats and Instacart have formed an unlikely alliance in the grocery and food delivery war (Axios)

Founded in 1992, with 170+ of its ‘athletic country clubs’ nationwide, Life Time fitness barrels into pickleball craze with new courts, Lululemon partnership (CNBC)

First news

• The trust funds used to pay Social Security benefits are now projected to be depleted by 2035
• Private equity firms were responsible for one in five healthcare bankruptcies last year
• Three secluded Scottish islands available for a bargain price.

Chart of the Day

MARKET LEVELS

MORNING INSIGHT

Good morning!

This week is light on incoming macro, so earnings are likely the primary focus. Overall, it’s been a good earnings season (80% of companies beating) but with a more muted equity reaction. The key takeaways from earning season are as follows:

• First, earnings beats are strong enough to raise 2Q2024 EPS as well as FY2024 EPS. This is the first time since 2021 that quarterly earning estimates have been revised higher (+0.5%) in the first month of the quarter (2Q24); this was last the case in 4Q21.
• Second, there is enough EPS momentum + sector reversals to drive acceleration of EPS YoY growth through the rest of 2024. As we’ve pointed out in recent notes, 3 sectors are seeing a reversal (to positive) in EPS momentum:
  – 1Q24 2Q24
  – Energy -24% +17%
  – Healthcare -24% +21%
  – Materials -21% -6%

Click HERE for more.

TECHNICAL

U.S. Equities are starting to look much more appealing again, given the comeback of several former groups which had been hard-hit during the selloff this past March.

For instance:

–Semiconductors have achieved a recent breakout and look to be the best part of Technology.

–Transportation stocks have erased the breakdown into late April, and May has produced a better than average bounce-back in the DJ Transportation Average to reclaim the area of the former breakdown.

–Emerging markets (“EM”) have come to life as China began to “re-awaken” back in February. The recent breakout in the Emerging Markets iShares MSCI ETF (EEM 0.44% ) is noteworthy and bullish for EM.

–Biotechnology has begun to slowly but surely lift off of 52-week lows, and several prominent names such as BIIB 0.23% , and MRNA 0.17%  have begun to bottom out following a dismal six months. XBI has exceeded a multi-month downtrend and looks much better technically than a few months ago. 

–Solar stocks are gradually starting to stabilize after a very difficult 2023. The uptick in this group is thought to be related specifically to the beginning of yields rolling over.

–Homebuilding names have also begun to stabilize after a tough few months which saw many stocks underperform as interest rates lifted on the long end. The recent pullback in rates could kick off a larger rally in builders’ stocks.

-Finally, Small caps have certainly begun to show some much better relative strength after a difficult start to 2024. While two weeks of outperformance are insufficient to surpass the multi-year downtrend in place on relative charts of Small-caps vs. Large, it’s a step in the right direction and should continue to strengthen as rates start to come down further into this Summer.

Click HERE for more.

CRYPTO

As we anticipated in mid-April, May 1st appears to have been a pivotal date for interest rates, which have broadly declined since the QRA and FOMC meetings. The release of soft jobs data on Friday has increased expectations for rate cuts within this calendar year. Flows are gradually beginning to return.

Click HERE for more.

FIRST NEWS

Runway Off Cliff Extended into Unknown. The latest report from the Social Security trustees, released on Monday, indicates that the trust funds used to pay Social Security benefits are now projected to be depleted by 2035, a year later than previously anticipated. Once these funds are exhausted, only 83% of benefits could be paid unless Congress intervenes.

The revised forecast is attributed to favorable economic conditions, including lower unemployment rates, robust job growth, and robust wage levels, which resulted in higher contributions to the Social Security program. Currently, both employees and employers chip in 7.65% of the employee’s earnings toward Social Security and Medicare.

Despite the one-year adjustment in the depletion date, it’s important to note that the two Social Security trust funds face distinct financial challenges and have different timelines for when their respective funds may be depleted, reflecting each fund’s peculiar financial challenges. WSJ

Lethal Side Effects. The impending bankruptcy of Steward, a major U.S. hospital chain previously owned by private equity firm Cerberus, is set to intensify scrutiny from Washington over private equity’s involvement in the healthcare sector. Steward, which operates 30 hospitals across eight states, filed for bankruptcy this week, partly due to unusual financial structures put in place when Cerberus extracted $800 million in profits before selling the hospital system to its physicians.

This case follows other troubled private-equity investments in healthcare that have gone awry. A medical staffing company owned by KKR filed for bankruptcy in 2023 after its lenders stripped away one of its most promising divisions. An autism treatment center backed by Blackstone and a chain of cancer clinics funded by KKR are among the PE-backed healthcare firms that have faced challenges. According to a nonprofit watchdog, private equity firms were responsible for one in five healthcare bankruptcies last year.

The Steward bankruptcy is poised to heighten concerns in Washington over the potential risks posed by PE ownership of vital healthcare assets. Policymakers may scrutinize the industry’s financial engineering practices and their impact on patient care and the stability of healthcare providers. Semafor

Carpe Diem, Lads. “Lying in the Straits of Moyle, between Scotland and Ireland, Sandaigh is part of a mini-archipelago to the southeast of the Mull of Kintyre, at the far end of the Firth of Clyde.” If this bit of Scots catnip doesn’t get you, stop reading now.

And if you do have a beating heart and a touch of auburn in your hair, consider this: those who have smartly extracted from the capitalist system the very lifeblood at its heart – i.e. sufficient capital – and now aim to exploit the loot in service of unbridled enjoyment of nature in the form of three (3) rugged, private (Scottish) islands should hearken well. Sanda (Sandaigh in Scots Gaelic) is the heart of three islands for sale off the coast of western Scotland, and boasts a primordial landscape featuring sheltered bays, sandy beaches, rocky shorelines, woodland and – what else – a loch. Part of a 450-plus-acre property, Sanda(igh) sports a five-bedroom farmhouse, dramatic vistas and, naturally, a tavern. Also a lighthouse.

Connected to the mainland (although that itself is a series of islands, but we’ll let this small point slide) by sea or air, the island could make an off-grid second home or a guest house for visitors you’re not too fond of (as it’s a 13-mile boat ride to nearest town Campbeltown). There is an abundance of wildlife, including sheep as well as colonies of puffin, razorbill, and cormorant. 

The owners are asking a mere £2.5 million – surely a small price to pay for well-earned peace of mind in your own piece of remote Scottish paradise. And if you know someone who hasn’t earned it yet, feel free to forward this newsletter – so they could be ready the next time this wee bit of Scotland is on the market. MansionGlobal