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

“We can learn from history, but we can also deceive ourselves when we selectively take evidence from the past to justify what we have already made up our minds to do.” — Margaret MacMillan

Overnight

Medical device maker Semler Scientific stock rises 25% after $40M Bitcoin investment (CD)

Rate hikes aren’t off the table, Fed’s Kashkari says (Barron’s)

Hess shareholders approve $53 billion merger with Chevron (WSJ)

Wall Street’s favorite recession indicator is in a slump of its own (WSJ)

Market crash indicator with spotty track record ‘Hindenburg Omen’ triggered last week (CNBC)

GameStop shares leap after it raises almost $1bn in stock sale (FT)

Toyota bets on new line of combustion engines in challenge to Tesla (FT)

Georgia adopts Russian-inspired ‘foreign agents’ law (FT)

Western businesses backtrack on their Russia exit plans (FT)

Belgium pledges 30 F-16 fighter jets to Ukraine, bringing the total number of F-16s promised to Ukraine by NATO allies to ~80 (FT)

Intel Arrow Lake looks set for a September launch in a next-gen-CPU battle against AMD Ryzen 9000 (TR)

Novo Nordisk blames middlemen in U.S. healthcare system for high prices of weight loss drugs Wegovy and Ozempic (MW)

Vivek Ramaswamy urges culture shift at BuzzFeed after building stake (FT)

Adam Neumann gives up bid to buy back WeWork (WSJ)

OpenAI forms new committee to evaluate safety, security (WSJ)

OpenAI begins training next AI model as it battles safety concerns (FT)

AI’s ominous scarcity crisis (Axios)

Bankruptcies have left more stores vacant, but the space doesn’t sit empty for long (WSJ)

Moderna makes big play for Big Tech talent (WSJ)

PE giants near settlements with SEC over texting violations (WSJ)

New T+1 stock-settlement rule could help active traders avoid getting their accounts frozen (MW)

ExxonMobil chief says Calpers is neglecting members’ interests in AGM vote (FT)

DraftKings, FanDuel stocks drop as Illinois hikes tax for sports betting (Barron’s)

CAVA issued a Q1 beat-and-raise despite declining same-store sales growth as consumers reduce spending on dining out (BRN)

Saudi Arabia to raise $10 billion to $20 billion in fresh Aramco stock sale (WSJ)

T-Mobile to buy most of U.S. Cellular in $4.4 billion deal, including debt (WSJ)

Activist investor Elliott bets $2.5 billion on proposed shake-up of Texas Instruments aimed at boosting cash flow (BBG)

Shein promised to have a big U.S. IPO, but its China roots got in the way (WSJ)

Sabadell woos crucial retail investors in BBVA takeover battle (FT)

Catalyst quant fund shorts U.S. 10Y as key macro bet (BBG)

Rating firms stay cautious in ratifying private credit loans (RT)

Key clients desert PwC China as Big Four rivals circle (FT)

Blacklisted Chinese firms rebrand as American to dodge crackdown (WSJ)

China financial firms unusually cash-rich as savers pile in (BBG)

UBS was Europe’s worst-selling fund house in April (FT)

European fintech N26 says regulations cost it billions in growth (FT)

Japan external assets hit record high to remain world’s top creditor (RT)

U.S. consumer confidence unexpectedly improved in May (RT)

IMF upgraded China’s 2024/25 GDP forecasts after ‘strong’ Q1 (RT)

Mongolia defends plan to tap mining riches for new SWF (BBG)

U.K. fund manager Nick Train apologized for poor investment performance (FT)

Major proxy firms recommended voting against Toyota chairman (RT)

Robinhood launches a maiden $1B stock buyback (RT)

Chicago to offer most generous subsidies to save downtown (WSJ)

Ex-Pioneer CEO says FTC used him as ‘scapegoat’ in Exxon deal (WSJ)

Former FTX executive Salame sentenced to 7.5 years in prison (BBG)

Mortgages stuck around 7% force rapid rethink of American dream (BBG)

The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index hit a record high for the sixth time in the last 12 months (SP)

Nine out of ten bondholders back Zambia’s proposal to restructure its $3 billion in outstanding eurobonds under the G20 Common Framework (Semafor)

Microsoft says it would support the development of an AI model in Kiswahili as part of its $1 billion investment in Kenya’s tech ecosystem (BDA)

Launched in 1977, ex-Solar System in 2012, now 15-plus billion miles from Earth, the Voyager 1 interstellar spacecraft again transmits usable data after months of gibberish (LS)

Chart of the Day

MARKET LEVELS

MORNING INSIGHT

Good morning!

We have a few days left in May, and this is proving to be a strong month for the S&P 500, up nearly 6%. The natural question is: what can we expect for markets in June? We expect June to be a positive month, with our rationale laid out below.

We see 5 supports/catalysts for next month:
– first: a high probability of June being a positive month (seasonal below)
– second: favorable inflation data points:
– 5/31 Fri 8:30am ET: April Core PCE
– 6/10 Mon 11am ET: NY Fed 1 Yr. Inflation Expectations
– 6/12 Wed 8:30am ET: May CPI
– third: low utilization of leverage, measured by NYSE Margin Debt
– fourth: $6 trillion – and growing – cash on sidelines (yes, still…)
– fifth: EPS season shows AI spending/transformation still strong.

Click HERE for more.

TECHNICAL

The wave structure over the last week makes a compelling case that SPX might be in its fourth wave higher from mid-April.

If this is true and upside targets are near 5400 before consolidation, then the Fibonacci range on this recent SPX price action is shown below.

As can be seen, following a sharp rise into mid-June, a drawdown might get underway if/when we see SOX and AAPL hit upside targets and begin to consolidate.

This might allow for a pullback down to 5200, or even a bit lower, ahead of yet another rally into August.

The immediate takeaway is that last week’s 5341.88 intra-day peak should be challenged and exceeded over the next couple of weeks.

Click HERE for more.

CRYPTO

In our latest video, we discuss: 1. why we think fears about Mt. Gox tokens are overblown, and 2. Semler Scientific as the latest corporate entity to adopt a Bitcoin treasury strategy.

Click HERE for more.

FIRST NEWS

How to Build 60,000 Airplanes a Year and Win a War. The United States built its world-beating aircraft industry during World War II through a remarkable industrial transformation standing as a series of lessons for today’s economy, both micro and macro, and driven by several key factors.

Prior to the war, the U.S. aircraft industry was relatively small, producing ~3,100 aircraft in 1937, most of them small, private planes. Then, growing demand for warplanes from Britain and France, who were fighting the Nazis, provided a steady source of demand that allowed U.S. manufacturers to take massive risks and expand their factories exponentially. Between 1939 and 1944, the total weight of aircraft produced in the U.S. increased by a factor of 64.

One of the driving forces behind this expansion was the Defense Plant Corporation (DPC), essentially a state-owned bank that financed defense production. Conceived by one Bill Knudsen, a GM executive in peacetime, the DPC provided plentiful financing for the aircraft industry’s growth. Knudsen and the Roosevelt administration had the foresight to anticipate the need for a major war effort and expand U.S. manufacturing capabilities well before the bombs began to fall.

Existing U.S. industrial capacity also played a role in how fast the country was able to spool up the making of airplanes. Many factories previously used for producing cars, appliances, and sundry other consumer goods were quickly repurposed for the manufacturing of aircraft and aircraft engines. The country’s robust primary industry, including aluminum smelters, kicked in and provided the raw materials needed to fuel the aircraft industry’s growth.

Another crucial factor was the employment of women (see yesterday’s First News on the topic of what modern-day India is doing on this front) who filled around 40% of the labor needs in the massive aircraft factories, their contribution immortalized by the iconic figure of Rosie the Riveter.

Through a combination of steady demand, government financing, existing industrial capacity, and a skilled workforce that included a meaningful number of women, the U.S. accomplished the incredible industrial feat of transforming its aircraft industry into a world-beating force during World War II.

The success of the World War II aircraft production effort in the United States offers valuable lessons, but also highlights the contingencies and limitations of such a rapid industrial scale-up – useful in approaching the similarly ambitious scale-up of AI capabilities now being attempted by the tech industry.

While the U.S. was able to achieve an incredible 64-fold increase in aircraft production between 1939 and 1944, this success was highly dependent on specific circumstances.

Initially, the U.S. was woefully unprepared to expand its aircraft industry, lacking the organizational infrastructure and plans necessary to handle such a massive growth in scope. It wasn’t until 1942, three years after the war had begun in Europe, that U.S. aircraft production truly ramped up, and this was only possible due to the foresight of individuals like Bill Knudsen and the enormous early orders from Britain and France.

This history demonstrates that, while a complex manufacturing industry can grow rapidly under exceptional circumstances, there are limits to how much it can be accelerated, and success depends heavily on the preparations made beforehand. In this sense, the preparations being made by the likes of Google and Microsoft, detailed in It’s Electric!, our recently published Signal From Noise on U.S. electric power, are illustrative. Yet the World War II effort shows that, even in an emergency, some things can only be accelerated so much.

For modern America, this lesson is particularly relevant in the context of a potential conflict with China. Currently, the U.S. does not appear to be sufficiently concerned about this possibility and is not making the necessary investments or regulatory changes to fund a scale-up of its defense industry. While orders from Ukraine and Taiwan could provide the steady demand needed for the industry to revitalize itself, the government has been inconsistent with the necessary funding. This is where AI-driven defense contractors have stepped in, e.g. Palantir, Anduril, and SpaceX (the first publicly traded and the other two on their way to being so, as mentioned in yesterday’s First To Market). Construction Physics