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

“The purpose of life is not to be happy. It is to be useful, to be honorable, to be compassionate, to have it make some difference that you have lived and lived well.” — Ralph Waldo Emerson

Over the Weekend

Americans really, really hate inflation – and that’s a big problem for the Fed (WSJ)

Elliott takes big stake in Southwest Airlines (WSJ)

Far-right makes significant gains in European parliament elections (FT)

France’s Macron dissolves National Assembly after Le Pen victory in European vote (WSJ)

French banks some of the hardest hit, with BNP Paribas, Credit Agricole, and Société Générale all tumbling between 4.5%-7.4% (RT)

Israel rescues four hostages held in Gaza (WSJ)

U.S. to offer landmark defense treaty to Saudi Arabia in effort to spur Israel normalization deal (WSJ)

Economic data paints a picture of two Americas (WSJ)

Beneath the calm market, stocks are going haywire (WSJ)

Japanese equities rise after GDP data revision (FT)

Biotechs line up for IPOs in bullish sign for US listings market (FT)

The Chinese quant fund-turned-AI pioneer (FT)

Narendra Modi sworn in as Indian prime minister for third term (FT)

Billionaires Mittal and Ambani take on Musk in India’s internet space race (FT)

Giorgia Meloni puts brakes on Italy’s solar energy rollout (FT)

Norway’s oil fund to vote against Musk’s $56bn Tesla pay award (FT)

Tesla looks to cut award for lawyers in Elon Musk pay lawsuit from $5.2bn to $13.6mn (FT)

G7 nations will issue a rare public warning to small Chinese banks to stop helping Moscow evade international sanctions (RT)

PwC asks laid-off staff to keep silent (FT)

Equity listings in Dallas are no laughing matter (WSJ)

Retail traders push India stock option volumes above S&P 500 (FT)

Hedge fund shorts on European government bonds hit a two-year high (FT)

Emerging market traders flock to local debt as elections upend FX bets (BBG)

CrowdStrike, KKR, and GoDaddy will join the S&P 500 (RT)

U.S. bond funds saw their largest weekly inflow in four weeks (RT)

GM partnered with Costco to drive EV sales (CNBC)

Shein’s pre-IPO charm offensive hits roadblocks in Europe (RT)

Japan banks to divest strategic Toyota shareholdings worth $8.5B (RT)

60% of Aramco’s $11.2B share sale went to foreigners (BBG)

Shari Redstone receives fewest votes in Paramount board election (RT)

Bill Gross seeks record $20M sale of stamp collection (FT)

U.S. household wealth hit a record $160T in Q1 (RT)

Research shows hybrid work is as valuable as a raise (CNBC)

What swing state Michigan’s boom says about the Biden economy (FT)

Astronaut Maj. Gen. William “Bill” Anders, one of the first three people to orbit the moon as part of NASA’s Apollo 8, and the first to show us an image of Earth from space, dies in a plane crash at 90 (CBS)

Apple is expected to unveil a new OS as well as AI features for iMessage and Safari, possible partnership with OpenAI, at its Worldwide Developers Conference, starting today (YF)

Eighteenth-ranked underdog Team USA secures historic overtime victory over Pakistan (BBC)

Chart of the Day

MARKET LEVELS

MORNING INSIGHT

Good morning!

At the start of last week, markets were incrementally dovish, fueled by the soft pricing readings in (the ISM surveys, both manufacturing and services). Yet Friday’s jobs strongish report resurfaced hawkish views as YE2024 Fed cuts tanked from 1.9 to 1.5. In our view, this is an overreaction to “strong” data but a reminder (or confirmation) that markets lean hawkish/bearish. We think this is a positive setup for the coming week and we remain constructive on stocks for June overall.

The most important day this week will be Wednesday:
– 6/10 Mon 11:00 AM ET: May NY Fed 1yr Inf Exp   
– 6/11 Tue 6:00 AM ET: May Small Business Optimism Survey    89.5e
– 6/12 Wed 8:30 AM ET: May Core CPI    0.29%e
– 6/12 Wed 2:00 PM ET: Jun FOMC Decision   
– 6/13 Thu 8:30 AM ET: May Core PPI    0.27%e
– 6/14 Fri 10:00 AM ET: Jun P U. Mich. 1yr Inf Exp    3.2%e

Click HERE for more.

TECHNICAL

S&P and QQQ are now back to new all-time highs, as U.S. Treasury yields have begun their descent. This won’t prove to be a straight shot for either asset class, as the broader market has not yet begun to participate, and some signs of negative momentum divergence remain present. However, a stair-stepping rally makes sense for Equities, as Treasuries seem to have shown their hand this week, and June seasonality in election years remains positive. Overall, a bullish stance remains correct, but with close eyes on other sectors starting to kick into gear in the weeks to come.  

Looking back over the past few weeks, this choppy market has proven to be unsettling for bulls and bears alike, but some consolidation following steep runups is typically common, and can provide opportunity. However, it’s fair to say that the Equity market landscape since late March has been a lot more challenging than the period from last October 2023 into this past March 2024.

Friday’s violent spike in yields failed to derail the Treasury rally that looks to have gotten underway this past week. Both the U.S. Dollar and yields looked to have tipped their hand, and generally should begin trending steadily lower in the weeks and months to come.

Click HERE for more.

CRYPTO

Semler Scientific (SMLR -2.93% ), a publicly traded medtech company, increased its Bitcoin holdings yesterday by purchasing an additional $17 million worth of BTC, bringing its total to 828 BTC, valued at over $58 million. The company also announced plans to raise an additional $150 million in debt to fund future Bitcoin purchases. This move underscores their commitment to a dual strategy of running a profitable medtech business while actively acquiring Bitcoin. This approach mirrors the strategy employed by MicroStrategy (MSTR -3.00% ). Should the market begin to ascribe a similar premium to BTC NAV for SMLR, it could significantly benefit shareholders.

Telegram has launched “Telegram Stars,” an in-app token for purchasing digital goods and services, which can be swapped for Toncoin (TON 15.22% ) on the Fragment platform. This move follows Toncoin’s all-time high of $7.76, with its market cap nearing $18 billion. Stars are aimed at incentivizing developers to build on Telegram by allowing them to reinvest in promoting their apps, potentially reducing overall commission costs. The initiative enhances Telegram’s ecosystem by integrating digital currency for seamless in-app transactions. This announcement followed reports indicating that a TON wallet is now first in the Finance category on Google Play, surpassing major apps like Binance at 6, Coinbase at 26, and Phantom, which has dropped to 27 after previously topping the category.

FIRST NEWS

The Gap Year. A state-run think tank in South Korea believes that girls should start school earlier than boys – and that this will make them all more likely to have children as adults. The Korea Institute of Public Finance is proposing that creating a year-long age gap between boys and girls might create a greater likelihood of attraction between the two because “the developmental level of men is slower than that of women” and men are attracted to younger women in general. The idea is one of several attempts to tackle the country’s falling birth rate, which is a clear problem. The backlash has been swift and no less clear, with one sociologist saying “that such a report, without any screening, was published… by a state-run research institute that will evaluate measures to address low birthrates in the future, no less – is ridiculous.” Indeed, it’s not necessarily a lack of attraction that may be the stumbling block – in South Korea or elsewhere where declining birthrates are a society-wide problem. As one reviewer said, “instead, they should propose policies to create the right environment for raising children.” The Guardian

Oh, What’s The Point Of It All?! New research has found that LLMs outperform financial analysts in the ability to predict earnings changes. Specifically researchers at the University of Chicago Booth School of Business provided standardized, anonymous financial statements to GPT4 and instructed the model to analyze them with the aim of determining the direction of future earnings. Even without any narrative or industry-specific information, the LLM outperformed financial analysts in its ability to predict earnings changes, exhibiting a relative advantage over human analysts.

The prediction accuracy of the LLM was on par with the performance of a narrowly trained state-of-the-art machine-learning model. What is fascinating is that LLM prediction does not seem to stem from its training memory, and yet it generates useful narrative insights about a company’s future performance. And the usefulness did not stop at insights. Trading strategies based on GPT’s predictions yielded a higher Sharpe ratio and alphas than strategies based on other models. Taken together, these results suggest that, if they want to be honest, many research shops whose names end with LLC will now need to append LLM to their shingle. Present company excluded, naturally.

We could look to the world of chess as a parallel. Chess engines are so advanced nowadays that not only can they demolish every grandmaster alive – they routinely play moves that humans struggle to even interpret. What’s more, unlike Deep Blue, which ran on two 2-meter-tall computer towers, modern engines can run on just a smartphone. Of course, GPT4 has them beat, since it runs in the cloud.

Yet, even though the mystery of chess is gone, banished by computers via brute number-crunching force, the mystique is alive and well, machines not at all having destroyed the game for humans. Chess thrives yet – and this, as a parallel, may offer some small glimmer of hope to all those human-run financial research firms.

Color commentary, anyone? SSRN