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

“You are alive today, and no matter what your condition, make a mark here and now.” — Angelo Sotira

Over the Weekend

Jim Simons, considered one of the world’s greatest investors, dead at 86 (MW)

Russia launches assault on new front against stretched Ukrainian forces (WSJ)

CFTC wants to ban trades tied to elections, sports and awards contests (WSJ)

The US is reportedly readying a sweeping new set of tariffs on Chinese-made electric vehicles, solar panels, batteries, and other key sectors (Semafor)

Chinese leader Xi Jinping wraps his European tour by hailing deepening ties with Hungary (Semafor)

Ukrainian drone hits refinery ~750 miles into Russian territory, the deepest strike yet by Kyiv as part of a campaign that has destroyed over 1/10th of Russian oil-refining capacity (Semafor)

Mental health awareness campaigns may have the opposite effect of that intended (Semafor)

The U.S. military is betting on a decades-old electricity source that has never quite hit the limelight (Semafor)Jupiter head of small and mid-cap equities Dan Nickols retires (IW)

Growing signs of deepening links between Big Oil and Donald Trump’s campaign to return to the White House (Axios)

Fed’s Logan says U.S. monetary policy may not be tight enough (RT)

Consulting firms’ grip on Saudi economy sparks local grievance (FT)

Europe sees two-speed IPO recovery as smaller deals lag (RT)

Covid-era jobs switchers are less satisfied now (BBG)

Chinese VCs warn IPO freeze will hit innovation (RT)

Chinese e-commerce giants face delicate balance between discounts, profit (RT)

U.S. consumer sentiment at six-month low as inflation expectations rise (RT)

U.S. equity funds see first weekly inflows in six weeks (RT)

Global equity funds see biggest inflows since March (RT)

Closure of Trump Media auditor to delay nine IPOs (FT)

BP and Shell focus on basics to boost shareholder returns (FT)

Investors with links to China are now funding U.S. defense startups (WSJ)

Electricity supply is failing to satisfy U.S. tech growth (WSJ)

Household demand for Italian debt slumps (FT)

France secures jobs and investments from Amazon, Pfizer, and Morgan Stanley (RT)

U.S. judge halts rule capping credit card late fees at $8 (RT)

Food startup boom is seemingly over (BBG)

U.S. steps in with incentives to promote bird flu tracking in farm workers (Barron’s)

A longtime customer is demanding a refund of $277that Hertz charged him for gas… while he drove a Tesla (Quartz) 

How a giant sunspot, wide enough to fill 15 worlds, created aurora mayhem this weekend (Space)

First news

• Survey says: millions don’t expect to work until age 62
• Freddie Mac sees, and seeks, new revenue stream in trillions of untapped home equity in U.S. houses.

Chart of the Day

MARKET LEVELS

MORNING INSIGHT

Good morning!

Seven companies are reporting this week.

Of the 460 companies that have reported so far (92% of the S&P 500):

• Overall, 81% are beating estimates, and those that “beat” are beating by a median of 8%.
• Of the 19% missing, those are missing by a median of -5%.
• On the top line, overall results are beating estimates by a median of 5% and missing by a median of -4%, and 60% of those reporting are beating estimates.

Click HERE for more.

TECHNICAL

For those who missed it, you can view Mark Newton’s CNBC appearance on 5/10 by clicking HERE.

Last week went a long way toward suggesting that our recent drawdown from late March has run its course. The selloff spanned just three weeks total in duration, and the snapback in many sectors has made it technically likely that SPX and QQQ will test and exceed the recent peaks achieved two months ago.

Daily momentum gauges are upward-sloping and not overbought, while short-term breadth has recovered after dipping to near-oversold levels in mid-April. As has been discussed, intermediate-term breadth gauges have held up quite well and have given confidence that a broad-based rally remains a favorable theme for 2024.

Click HERE for more.

CRYPTO

EigenLayer’s native token claims opened Friday, marking the commencement of the distribution and “stakedrop” plan announced by the project last month. Following the claim, the tokens will remain non-transferable until the end of the third quarter, with the expected release date for token transfer functionality set for September 30th. Despite this restriction, users can immediately begin staking and delegating tokens to EigenDA operators, the platform’s native data availability solution. EigenLayer has garnered over $15 billion in ETH deposits since its inception in 2023. The Eigen token introduction introduces inter-subjective forking, enhancing the security of the AVS ecosystem. Regarding tokenomics, the Eigen Foundation allocated 45% of the token supply for the network’s community and ecosystem, with 15% earmarked for stakedrops, including a minimum allocation of 110 tokens to eligible users. Additionally, investor tokens will begin vesting upon token transferability.

Marathon Digital (MARA), one of the larger bitcoin miners and a feature in our recommended equities basket, fell short of consensus revenue expectations for the first quarter due to operational challenges, mining only 2,811 bitcoin during the period, marking a 34% decrease from the previous quarter. The company attributed this shortfall to unexpected equipment failures, transmission line maintenance, and weather-related curtailments at various sites. The company did report an EPS of $1.26, significantly surpassing the consensus estimate of $0.02, but the figures were skewed due to the adoption of newly-approved fair value accounting rules. Marathon maintains its 2024 guidance of reaching 50 exahash per second (EH/s) and anticipates further growth next year.

FIRST NEWS

Work No More. Among the younger workforce, the idea of achieving traditional milestones – your home ownership, saving for retirement, building wealth – seems increasingly elusive. A prevailing sentiment has been, “I’ll never be able to stop working.”

New data from a survey by the New York Fed, published last week, reveals a surprising shift in retirement expectations: the number of workers looking forward to (or dreading) working beyond age 62 has plummeted.

As of this March, only 45.8% of respondents expected to work past 62, a significant drop from 55.4% four years ago.

Moreover, just 31.2% anticipated working beyond 67, down from 36.2% four years ago.*

While the reasons behind this change remain unclear, economists speculate that factors such as preferences for part-time or freelance work, wealth accumulation, future earnings projections, economic confidence, or even a lack of confidence in reaching the expected age, could be influencing these results.

Interestingly, the motivations seem to span both a carpe diem mindset and its forward-thinking counterpart, contributing to the broader adoption of these expectations. Then there’s uncertainty about the future, especially in the face of potential paradigm shifts in work due to AI and automation across sectors, which could either lead to shorter work weeks or increased job insecurity.

Almost every labor-market chart over the past five years has been shaped by the pandemic, from the initial surge in joblessness and subsequent healing as businesses reopened, to The Great Resignation when many, bizarrely, quit their jobs amid a post-pandemic hiring frenzy.

The lingering effects of this supply-and-demand reversal continue to fuel the inflation debate that defines the current economy. The New York Fed notes, “To the extent that these expectations signal actual future retirement behavior, they also have implications for future decisions by consumers about the timing of claims for social security benefits and the receipt of those benefits.”

In other words, the fact of millions of people leaving the workforce earlier than expected will come at a cost, and the bill may be due sooner than anticipated. LinkedIn

^{* The New York Fed economists found these expectations consistent across age, education, and income levels, though they seem to be more pronounced among women.}

More Micro than Macro. Freddie Mac, a GSE,* is eyeing a new revenue stream by dipping into the record $17 trillion of untapped home equity in U.S. houses. Approximately $850 billion of that home equity is found in homes with first mortgages owned by Freddie Mac, so the agency proposes to start purchasing second mortgages written on those properties.

If approved, a GSE-backed market for second mortgages could stimulate more lending and provide consumers with access to additional funds. The catch is that defaulting on these loans could put homeowners’ properties at risk.

Freddie’s regulator, The Federal Housing Finance Agency, seems likely to approve the proposal, noting that “second mortgages are typically offered at a lower interest rate than some financing alternatives such as consumer or personal loans.”

The potential success of this plan has raised concerns within the financial services industry. There are indications of a subtle PR campaign against the idea, with arguments that it could contribute to high inflation and exacerbate wealth inequality. Potential losers include firms currently securitizing second mortgages and consumer lenders who would face new competition with lower pricing.

Unlike cash-out refinances, which require swapping an existing lower-rate mortgage for a higher-rate new one, second mortgages would allow homeowners to access their equity without refinancing the entire loan. These fixed-rate second mortgages would effectively replicate cash-out refinances but apply the higher rate only to the additional principal amount.

The move could unleash near $1 trillion into consumers’ wallets, potentially stimulating the entire U.S. economy. Then again, its effect could be very limited, given the challenges in marketing the product and limited profitability for lenders due to the small loan sizes.

While allowing Fannie Mae and Freddie Mac to purchase second mortgages may not unleash trillions of dollars in new credit into the economy after all, it could still provide a new source of funding for homeowners wanting to access their home equity. Axios

^{* A government-sponsored enterprise is a quasi-governmental entity established to enhance the flow of credit to specific sectors of the U.S. economy.}