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

“Live in the active voice, rather than passive. Think more about what you happen than what is happening to you” — William DeWitt Hyde

Overnight

Slovak prime minister Robert Fico in life-threatening condition after assassination attempt; expected to survive (RT)

Ex-Jane Street traders cite pay upset in secrets countersuit (BBG)

Citigroup executive responsible for implementing thousands of job cuts quits (FT)

Google turns to AI to protect users from mobile phone thefts (FT)

After gaffe, the Governor of Shizuoka prefecture in Japan says he is leaving politics to “become a hermit,” and “talk to little birds in the forest” (Semafor)

Credit assets outperform for large PE firms (WSJ) 

New visa rules force HSBC and Deloitte to withdraw UK job offers (FT) 

PE deal machine restarts but exits still sputter (WSJ) 

Global corporate defaults doubled in April (RT) 

Goldman poaches two bankers from Evercore and Lazard (RT) 

Accountant shortage prompts U.S. plan for quicker path to qualification (FT) 

Saudi Arabia’s PIF slashed holdings of US equities (BBG) 

CalPERS will allocate $25B to green private market investments (FT) 

University of California will cut back on private markets exposure (WSJ) 

Chevron tops Tesla as most-shorted stock in April (RT) 

Berkshire Hathaway reveals secret minority stake in Chubb (FT) 

Trafigura, IXM caught in copper short squeeze as prices hit record (RT) 

Bank of America banker who died had sought to leave over long hours (RT) 

U.S. CPI eased slightly in April to 3.4% YoY (CNBC) 

Japan GDP declined 2.0% YoY in Q1 (RT) 

Welsh Carson escapes FTC price-fixing case over PE rollups (WSJ) 

Meme stock rally fizzled after two days (CNBC) 

Microsoft’s emissions up 30% since 2020 due to data center expansion (CNBC)

Chart of the Day

MARKET LEVELS

MORNING INSIGHT

Good morning!

Click HERE to view the report in PDF format. 

Seven companies are reporting this week.

Of the 462 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

^SPX 0.97% , QQQ 1.40%  have officially joined the Nasdaq Composite back at new all-time highs, while the DJ Transportation Average, Russell 2000, DJIA and Equal-weighted S&P 500 remain shy of these levels.

This minor divergence is not seen as a concern, but is rather part of a normal process of various averages pushing back to new highs, one by one, in such a manner that the rally slowly becomes more broad-based in nature.

Specifically, the act of Treasury yields extending their declines across the curve, along with the U.S. Dollar is thought to be quite important and supportive of the rally in risk assets. (As mentioned in prior reports, this recent decline has occurred as economic data has missed expectations, but has also had the effect of tempering sentiment for most hedge funds.)

Click HERE for more.

CRYPTO

Stablecoin issuer Circle is planning to shift its legal headquarters from Ireland to the United States. Circle’s parent company filed the necessary paperwork with the Ireland government to redomicile, with many speculating it is a strategic move ahead of an IPO in the United States. Circle confidentially filed for an IPO in January, submitting its S-1 statement to the U.S. SEC, and allowing them to set future plans privately. Circle had initially planned to go public via a SPAC merger in 2021 but it did not go according to plan, and it appears Circle has been waiting for better market conditions since then. Circle is the issuer behind USDC, the second largest stablecoin by market capitalization (behind tether), at $32.9 billion. They have been losing market share to Tether over the past year, but an IPO could bring fresh attention to USDC.

El Salvador continues to serve as a global leader in Bitcoin adoption. They announced that they have successfully mined approximately 474 bitcoin since 2021 (~$30.5 million) using their geothermal volcanic powerplant. The use of clean energy to mine bitcoin and fund government projects is a novel use case for bitcoin mining that can potentially be adopted by other energy-rich countries across the globe. El Salvador’s “Bitcoin Office,” an official government agency, has also disclosed a new treasury website where anyone can verify the country’s Bitcoin holdings. As of this morning, El Salvador holds nearly 5,751 Bitcoin, equivalent to approximately $370 million. El Salvador’s transparency and success with Bitcoin will likely serve as a case study for other nation states looking to find alternative funding sources or diversify their treasury strategies.

Click HERE for more.

FIRST NEWS

180 Degrees. The global macroeconomic fallout of climate change is six times as large as previously thought: That’s the conclusion of a new white paper authored by economists at Harvard University and Northwestern University, and published by the US National Bureau of Economic Research. Prior estimates had each degree Celsius of temperature increase result in a loss of 1% to 3% of global GDP. Those estimates were largely based on within-country risks, the economists argued, and do not sufficiently account for how rising global temperatures change the world’s entire climate system, making extreme events more likely. As a result, they estimate each degree Celsius of warming results in a 12% decline in global GDP. 

P.S.: The European Union outlined final rules on the language investment funds can use to highlight their sustainability credentials without greenwashing. For one, a fund has to have at least 80% of its assets meeting ESG objectives. Semafor

Passive Is the Way to Go. A new BCG report helpfully tracks flows data for over twenty years. The analysis is based on a global benchmarking study of 80 asset managers, representing $69 trillion in AuM, or ~60% of global AuM: mostly U.S. data; all mutual funds, no ETFs.

Between 1990 and 1999, 8% of net flows went to passive. Between 2000 and 2009, 26% of net flows went to passive. Between 2010 and 2023, 84% of net flows went to passive.

Furthermore: in 2023, positive net flows to the ten largest passive mutual funds comprised 95%. For actives, concentration is also growing, but the situation is better: in 2010 55% of positive net flows went to the top-10, compared with 67% in 2023.

Fewer new products are surviving despite attempts at innovation. In 2010, 60% of mutual funds reached the ten-year mark. In 2023, that number is down to 37%. Yet the context is more expansive. This week, the Financial Times published a story about ETF flows being positive for 58 consecutive months.

Now, ETFs and mutual funds aren’t two different industries; just one industry that’s changing. When the focus changes from choosing a side to the flux between sides, an altogether more interesting story emerges.

Overall, demand for investment products is up. Demand for marketing investment products is up. Things are changing, but they’re not looking bad. FundMarketer

Google Socks Microsoft a Hefty One. The biggest standalone new product announced at Google’s I/O conference was Astra, a mobile app using which users can hold up their phone and ask Gemini to analyze the video it captures in real time. Astra is a demonstration of Google’s multimodal approach to training AI models. Instead of using only text, Google went down a more difficult path of training models on text, audio, and video, all at once. That was a gamble that seems to have paid off. On Monday, OpenAI announced it had been traveling down a similar path, but Google seems to be ahead.

Some experts in AI believe multimodality is the path toward AI gaining a “world model.” The idea – mind-bogglingly – is that something special happens when AI can see the world, instead of just reading about it.

There were many impressive capabilities in this promo video Google shared (Astra isn’t out yet, so it’s all we have to go off of). But the one that really mattered came at the end, when a Google DeepMind employee asks Astra where she left her glasses. Astra remembered what it saw earlier in the video and reminded her.

Google’s new product, called “Gems”, may offer a glimpse into a future in which software is redefined as something personal, rather than a product created by a developer and distributed to the masses.

Gems, which allows users to customize AI models for their specific needs, is the company’s answer to OpenAI’s GPTs, which offer similar functionality and can be shared publicly for others to try. Creating a Gem, or a GPT for that matter, requires no coding or technical knowledge. Semafor