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

“Tact is the art of making a point without making an enemy.” — Isaac Newton

Overnight

Lord Cameron: U.K. not echoing Washington’s threat to halt arms supplies to Israel over its operations in Gaza (TI)

Turkey’s central bank says inflation will peak at 75% but raises year-end forecast (BBG)

Emerging market junk bonds are top performers in sovereign debt markets (FT)

Head of PR at Baidu creates own PR crisis by calling for employees who can do 50 straight days of business travel at her side; “I’m not your mom. I only care about results.” (FT)

Europe must close productivity gap with U.S. to lift growth, says Riksbank chief (FT)

Spanish lender BBVA draws rebuke from the country’s government after launching a hostile bid for domestic rival Banco Sabadell (FT)

Resignation agencies are proliferating in Japan, allowing employees to forgo the negative experience of quitting (FT)

Hedge fund boss Paul Marshall loses case over 2,364 silver bars salvaged by his company Argentum from WWII wreck (FT)

Investors lose enthusiasm for Opportunity Zones (FT)

Silver Lake shifts focus back to big takeovers after seeing smaller investments made during the pandemic land in ‘the regret zone’ (FT)

Norfolk Southern chief survives activist’s push to oust him (WSJ)

Solventum, the 3M healthcare business (actually) spun off on April 1, reported a better-than-expected Q1 profit, but no dividend forthcoming (Barron’s)

Hospitals are refusing to do surgeries unless you pay in full first (WSJ)

Warner Bros. Discovery remains ‘hopeful’ it can keep NBA rights (WSJ)

For the seventh consecutive year, women reported being less satisfied with their jobs than men (Axios)

Warner Bros. Discovery misses first-quarter estimates despite streaming growth (CNBC)

BHP-Anglo American deal raises alarm in Japan’s steel industry (RT)

T-Mobile, Verizon in talks to carve up U.S. Cellular (WSJ)

LA Dodgers and Chelsea FC owner Todd Boehly’s investment firm in advanced talks to buy private capital group Hayfin (FT)

Yeti had its biggest one-day gain since August as the luxury cooler maker upgraded its full-year earnings outlook after reporting Q1 revenue above expectations (FT)

OpenAI will announce a Google search competitor (RT)

Bridgewater’s CEO has ‘rewired’ the hedge fund (FT)

Goldman tops investment banks reaping windfall in Tokyo (BBG)

Big tech is leading the stock buyback spending spree (WSJ)

Lenders are seeing a bottom for consumers (WSJ)

Rates start to fall in Europe as Fed lags (RT)

Fed’s communications style scores well with analysts yet not public (RT)

Lazard named ex-Morgan Stanley M&A chair Colocci as vice chair / MD (RT)

Robinhood makes headway beyond trading (RT)

Carbon offsets found to be largely ineffective (RT)

Cornell President becomes third Ivy League leader to depart since December (WSJ)

IT services company Epam Systems fell 25% after lowering its full-year revenue guidance, signaling weakness in demand; a new, narrower forecast range for adjusted earnings implied a midpoint lower than Wall Street’s median projection (FT)

Ethereum founder claims SEC trying to ‘paralyze’ crypto industry (CT)

Shares of video game maker Roblox plunge after outlook cut (CNBC)

U.S. jobless claims rise the most since August (BBG)

TV ‘audience declines’ weigh on CNN owner Warner Bros Discovery’s results, with a 7% drop in revenue and a $1bn quarterly loss (YF)

‘Seriously underwater’ home mortgages tick up across the U.S.: one in 37 homes (BBG)

Ex-Goldman banker fights extradition over Ghana bribery case (BBG)

UBS wins fresh delay in filing response to AT1 wipeout case (BBG)

Wall Street banker’s death at 35 ignites firestorm over alleged grueling 100-hour workweeks (NYP)

Sony and Apollo’s plan for Paramount Global includes selling off CBS and other parts (Quartz)

Companies can’t issue debt fast enough, with 88 deals in 72 hours (BBG)

South Korea’s president calls for tax incentives to encourage corporate participation in government’s corporate-reform program that has a high level of interest from domestic and foreign investors (RT)

Funko taps former Hasbro executive as CEO (WSJ)

First news

• Capitalism, the word, began life as a French term used to refer to war finance, but you no longer need to participate in the war machine to fully profit from the stock market
• Gold. Own it, wear it, buy it, sell it, store it – just don’t worship it via third-rate infomercials.

Chart of the Day

MARKET LEVELS

MORNING INSIGHT

Good morning!

The S&P 500 is up ~2% so far this week – very impressive considering it has been a very light week on macro data and Fed speak, and also given the “poor” reaction of equities to 1Q24 earnings. There is an adage “never short a dull market” and this week’s nearly 2% gain is a reminder of that. Total gains for S&P 500 in May now top +3.5%.

What can we glean from stocks rising in a “dull week”?
– first, it suggests investors massively de-risked in April, and need to re-risk
– second, markets may be “course correcting” as “red hot” economy thesis questionable
– third, the drift higher, in our view, is evidence that the dominant view in markets is “hawkish” and “bearish”.

Click HERE for more.

TECHNICAL

U.S. Equities are starting to look much more appealing again from a broad-based point of view, given the comeback of several former groups which had been hard hit during the selloff this past March. Materials, Financials, and Industrials have started to kick into gear, while Healthcare is slowly trying to bottom out. Utilities have surged to show broad outperformance over all other sectors on a 1- and 3-month basis. However, this likely does not pose a problem for U.S. Equities, as interest rates begin to fall.

While Technology has lagged in performance over the last month, there have been some meaningful and positive developments in Tech in terms of the breakout in the Semis space, along with AAPL achieving its own breakout.

Emerging markets have also begun to show above-average strength, and a push back into growth stocks has helped this style look attractive despite a strong push into Technology. We’ll forgo discussion of SPX on a short-term basis to discuss the recent surge in Utilities.

Click HERE for more.

CRYPTO

As discussed last week, we achieved the favorable setup we were anticipating. A combination of (1) a dovish Federal Reserve, (2) an accelerated tapering of quantitative tightening (QT), and (3) a Quarterly Refunding Announcement (QRA) that met investors’ expectations contributed to a decline in rates during the first week of May, alongside a rebound in crypto assets.

However, crypto investors remain cautious while capital remains sidelined. Recent dovishness from foreign central banks and a partial retracement of the Japanese yen rally have led investors to adopt a wait-and-see approach before fully recommitting to the market.

Despite the macro setup paving the way, we have yet to see flows return to the market.

ETF flows were strong in the early days of May but have since fallen off, showing a slight net negative bias thus far this week. Stablecoin flows have also been unimpressive at best. CME futures open interest also remains in a downtrend, indicating that U.S. institutional investors are still hesitant to re-enter the market – either on the long side or for the carry trade.

Click HERE for more.

FIRST NEWS

A la Guerre? Not many people know that ‘capitalism’ began as a French word used to refer to the 18th-century system of war finance. In French, someone who lent money to a branch of the French royal government was called a capitalist (capitaliste). As far back as 1694, the British government allowed for the idea of central banking in order to fund war, and as relatively recently as in the 1940s, the debut of American war bonds helped launch a retail market for Treasuries. Yet, as crucial as war financing may be to the origins of capitalism, the greatest successes in the retail markets over the last 30 years have had little to nothing to do with defense spending. Per the chart below, not one of the best-performing stocks over the past 30 years is part of the war machine:

In 2023, the U.S. spent $820 billion, or ~13% of the federal budget, on defense, compared to a maximum of 27.9% in 1987 and lows of 11% in 2020 and 2021, and yet in the 30-odd years between the two extremes, the greatest wealth creation happening in the equity markets seemed to bypass the defense sector.

There was a pithy bumper sticker in the 1980s that said “It’ll be a great day when our schools have all the money they need and the Air Force has to hold a bake sale to buy a new bomber”. Those investors who’d rather avoid holding bake sales to support their families tomorrow are wise to invest in the stock market today, and now those of them who prefer to avoid supporting the war machine can rest assured in the knowledge that in forgoing defense stocks they are not at all sacrificing performance. Not many people know that. FT, LinkedIn

Spirit of 79? Six months ago we drew our readers’ attention to the trend of A-list Hollywood celebrities openly starring in ads for all sorts of products and services (The Full Jeroboam) – something that would have been unthinkable just 15 years ago. Morgan Freeman’s turn as the muse of Laurent-Perrier’s Grand Siècle line of fine champagne certainly made sense, what with the It takes time to become an icon tagline. The latest such collaboration is Idris Elba’s ambassadorship for gold – whose atomic number of 79 puts us in mind of the 1979 Rolls Royce Camargue, the pinnacle of Rolls-Royce’s luxury and, at nearly $150,000, the most expensive production car in the world at the time – which has been turned into a seemingly tasteful 67-minute faux-film. The trailer features images of mines, African tribes (Elba gamely dances in traditional garb), gold bars embossed with old-timey fonts, and – smart, given that they own ~22 thousand tons or 11% of the world’s gold reserves – glorious slow-motion shots of comely Indian women in jewel-embossed saris.

Its price having more or less doubled over the last decade – with an impressive surge over the past 6 months – gold is, well… golden these days. Who knows why the World Gold Council, which commissioned the elaborate cinematic extravaganza, thought the yellow metal, which is flying high all by itself, needed a wingman, but they could hardly have chosen a better one than Mr. Elba. For a much-less-forgiving take on the WGC’s attempt to distill the gold industry’s pockmarked history, skip the slick infomercial and watch this minority report. BoingBoing