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

“Some things cannot be taught; they must be experienced. You never learn the most valuable lessons in life until you go through your own journey.” ― Roy T. Bennett

Overnight

Jamie Dimon hints he is preparing to retire as CEO of JPMorgan Chase (WSJ)

JPMorgan leaders shape strategy as succession comes into focus (RT)

Jamie Dimon is ‘cautiously pessimistic’ on economy (RT)

Starwood’s $10 billion real-estate fund bleeds cash as it is running out of options (WSJ)

Grayscale CEO Michael Sonnenshein steps down (WSJ)

Palo Alto Networks falls ~9% despite beating Q3 top and bottom line estimates due to a disappointing FY forecast for billings and Q4 revenue (YF)

Zoom beats Q1 earnings estimates, raises FY earnings and revenue forecast thanks to robust demand as companies adopt hybrid work models (RT)  

JPMorgan’s Kolanovic is last prominent stock market bear (BBG)

JPMorgan emphasizes employee health after BofA banker death (RT)

All JPMorgan hires will receive AI training (BBG)

AI-intensive sectors are showing a productivity surge (RT)

Fed policymakers still cautious on inflation and policy (RT)

Auditors failed to raise alarm before 75% of U.K. corporate collapses (FT)

Wall Street firms increasingly look to Sun Belt for expansion efforts (QZ)

Janet Yellen is against a global tax on billionaires (WSJ)

Millennium hired GIC’s Naeimi as senior portfolio manager (BBG)

CalPERS opposed all Exxon directors amid shareholders dispute (BBG)

Target will lower prices on 5k items (RT)

FDIC chair will step down after scathing report (BBG)

Scarlett Johansson accuses OpenAI of taking her voice (CNBC)

A big sticking point in new capital rules for banks: Wall Street trading activities (WSJ)

Hims is jumping on a crowded Ozempic bandwagon (WSJ)

Tesla could be hit by Biden’s new tariff on Chinese electric-vehicle batteries and parts (WSJ)

Ivan Boesky, convicted in 1980s insider-trading scandals, dies at 87 (WSJ)

Millennium covets Citadel-size commodities gains, just not the risk (BBG)

Paper: There is no excess volatility puzzle (NBER)

First News

• A literary lesson for today’s economy from the London Crisis of 1825.

Chart of the Day

MARKET LEVELS

MORNING INSIGHT

Good morning!

It is arguably an understatement to say that Nvidia is one of the most important companies in the world, given that its chips are central to powering AI. The stock has been consolidating since February, pinned between $800-$900.

• Investors tend to be “top callers” when stocks consolidate, but after consolidations NVDA tends to make a parabolic rise higher (see late 2022 and late 2023).
• There is no reason to expect this post-EPS reaction to be any different. In fact, only a handful of NVDA 4.13%  EPS reports in the past year saw muted action.
• Thus, we think probabilities favor a rise in NVDA stock price post-EPS Wednesday – even given the lofty expectations – and this is true of the broader market as well, which is why we expect a broadening of the equity rally as we move through May.
• See changes to our Super and Sleeper Grannies at the link below and tune into our webinar on Tuesday, May 21.

Click HERE for more.

TECHNICAL

Technical recap for Monday, 5/20: The equity trend is bullish, but it’s been a bit of an uneventful start to the week outside of Technology performance, which, following a 2% gain in Semiconductor issues, managed to lead Technology higher by +1.23%. Still, the broader market performance was a bit more mixed, with just four sectors positive on the day. DXY and TNX look close to breaking trendline support, but until this happens, the Equity rally might prove to be a bit choppier than desired into the end of May, before a stronger push higher into June expiration. S&P 500 Equal-weighted index, along with the DJ Transportation Avg., along with many Small and mid-Cap Averages, remains below all-time highs and, as discussed last week, this larger broad-based rally will take time. However, despite some choppiness, SPX trends remain bullish and supportive of a push higher to near 5400, which might coincide with a Treasury rally into mid-June. 

Click HERE for the technical writeup of this month’s Super Granny Shot selections.

CRYPTO

Despite a dearth of macro data, this week is packed with potential catalysts. Key events include the first round of final decisions on spot ETH -1.23% ETFs, with VanEck on May 23rd and Ark Invest/21Shares on May 24th. Nvidia (NVDA 4.13% ) will report Q1 earnings on Wednesday. Additionally, numerous crypto-related discussions are expected on Capitol Hill, highlighting the ongoing regulatory focus on the sector (more on this below).

This week is set to be another significant one for crypto regulation. In addition to the spot ETH -1.23% ETF decisions on Thursday, several key rulemaking decisions are expected from the White House and Congress. The bill overturning SAB 121, which precludes federally-regulated depository institutions from participating in crypto as custodians, is now with the White House. President Biden, who has promised to veto the bill, has 10 days from Congressional approval to take action. Additionally, the FIT21 Act, which aims to provide regulatory clarity for digital assets by delineating the jurisdictions of the SEC and the CFTC while introducing robust consumer protection measures, is expected to be brought to the House floor for a vote. The House will also consider the CBDC Anti-Surveillance State Act, which prohibits the Federal Reserve from issuing a central bank digital currency (CBDC) directly or indirectly to individuals, using a CBDC for monetary policy, and requires Congressional authorization for any future CBDC issuance to protect financial privacy and prevent government surveillance. While this act is less market-moving, it is significant in the fight for individual privacy rights.

Click HERE for more.

FIRST NEWS

Lit Econ. Should the insights of economists like Paul Krugman or Nouriel Roubini on the current financial turmoil leave you wanting, an unlikely guide emerges – the early-20^th-century novelist E.M. Forster. Best known for works such as A Room With a View, Forster demonstrated remarkable prescience about future societal shifts. In his 1909 story The Machine Stops, he foresaw the isolating effects of communication technology a century before the rise of the internet.

Remarkably, Forster also provided a perceptive window into the dynamics of 21st century financial crises – also a century before they occurred. This is because the underlying processes mirror those of an early 19th century banking panic that Forster studied closely – the London Crisis of 1825. Comparing that era’s and today’s global financial system, it is only the scale that differs.

Forster’s unique perspective came from researching and writing Marianne Thornton: A Domestic Biography, 1797-1887 about his great-aunt, who had helped raise him. A central episode covered the fortunes of Forster’s uncle Henry Thornton, who, in 1825, at age 25, became the youngest partner at Pole, Thornton – the once-prominent London bank founded in 1773.

Marianne recorded the bank’s staggering profits of £40,000 per year – a sum exceeding even the £20,000 annual income of Mr. Darcy of Pride and Prejudice fame. Adjusted for inflation, Pole, Thornton’s £40,000 profits were something like $400 million in today’s economy, highlighting the firm’s immense wealth and status in Regency London. For Henry Thornton to become a partner at a mere 25 years old (even adjusting for the shorter life expectancy of two centuries ago) was a rare opportunity and, as it turned out, an equally rare test of strength.

In a letter to her friend Hannah More in December 1825, 28-year-old Marianne Thornton described the dramatic events unfolding at and around her brother Henry’s bank. She wrote of the “great pressure in the mercantile world” caused by the bursting of speculative “stock company bubbles” in industries such as shipping, canals, and textiles.

Marianne revealed that the bank’s managing partner had been “inexcusably imprudent” by not holding enough cash reserves, instead relying on the ability to borrow as needed, based on the firm’s good credit. Yet with panic spreading, no bank could access borrowing liquidity when all institutions faced the same cash crunch.

This led to a “dreadful Saturday”, when customers lined up to withdraw their deposits in a bank run. One large client pulled his entire £30,000 (~$300 million), leaving the bank’s vault “literally empty.” While the senior partners descended into chaos – raving about bankruptcy, crying, or simply being absent – it fell to the 25-year-old Henry Thornton to confront the dire predicament.

With the bank needing £33,000 to survive until closing, but only £12,000 incoming, Thornton raced through London, seeking emergency loans. He finally encountered the banker John Smith, who asked pointedly whether Pole, Thornton was solvent. Henry gave his personal assurance that it was. Smith agreed to help see them through until 5pm.

As the clock counted down, Henry braced for the inevitable foreclosure he assumed would happen Monday. Yet, unknown to him, contingency plans were being hatched at the highest levels of government and the all-powerful Bank of England.

The £400,000 (equivalent to $4 billion today) in cash that the Bank of England governors provided to Henry Thornton on just the 25-year-old’s word that Pole, Thornton was solvent seems almost unbelievable in retrospect. It was an astonishing commitment secured solely on the assurance of a young man. As the author notes, it would be akin to a joke circulating in 2008 that JPMorgan CEO Jamie Dimon could borrow $2 billion from the Fed simply by pledging his dog as collateral.

In the pre-dawn hours that Monday morning, Henry Thornton met alone with the Bank’s governor and deputy governor who counted out and handed him the £400,000 in banknotes. Marianne Thornton claimed one of them remarked to her young brother with amazement, “I hope this won’t overset you, my young man, to see the governor and deputy governor of the Bank acting as your two clerks.”

When Pole, Thornton reopened with this sudden £400,000 cash injection, the bank run quickly reversed as rumors spread that the Bank of England was now backing them. Customers who had withdrawn deposits just days before rushed to return their money.

This unprecedented central bank intervention, providing emergency lending and liquidity to a struggling bank, marked the birth of crisis financial management as we still know it today. The Bank of England embraced the role of maintaining orderly markets and asset prices during panics, rather than allowing a free-market correction the broader fallout be damned.

The rationale, as remains true now, was that letting asset prices reach free-market clearing levels during a crisis could devastate the real economy through cascading bankruptcies and unemployment. Thus central banks positioned themselves to take extraordinary actions in the name of financial stability.

This paradigm set the stage for future central bank policies such as the Federal Reserve’s emergency lending facilities and Troubled Asset Relief Program during the 2008 global financial crisis. When politicians are unwilling or unable to directly intervene, central banks can act as lenders of last resort using their unique powers and relative degree of insulation from politics.

The 1825 crisis showed the merits of this approach compared to a hands-off policy response that allowed the Great Depression to spiral out of control from 1929-1933 based on the flawed reasoning of ‘purging rottenness’. While Pole, Thornton ultimately failed, the wider British economy rebounded relatively rapidly following the Bank of England’s stabilizing actions in 1825. Grasping Reality