US Home Prices Fall By Most In 11 Years

Americans are NOT paying off their credit card debt. Over 36% of U.S. adults owe more money in credit card debt than they have saved. And some are turning to credit cards to pay their mortgages. 

I don’t need a PhD in economics to know this doesn’t end well.

Market

Prices as of 4 pm EST, 5/18/23

Macro

A week ago, markets placed the odds of a pause at June’s meeting at about 85%.

• Today, those chances are down closer to 60% as an increasingly divided Fed sends mixed signals.

• Yesterday, Dallas Fed President Lorie Logan suggested she was prepared to lift the benchmark rate by 25bps at the next meeting.

• Separately, Fed Governor Philip Jefferson presented the case for a wait-and-see approach.

• In any case, the Fed’s path from here is anything but certain and all eyes will be on Jerome Powell’s speech at 11 am for more clues.

Initial jobless claims fell by the most since November 2021 last week.

• The decline was largely due to a drop in fraudulent claims out of Massachusetts which inflated the previous week’s data.

• The 4-week average edged down while continuing claims fell to the lowest since early March.

• Overall, the data point to a labor market that remains relatively tight which could keep upward pressure on wages.

Sales of existing US homes declined 3.4% in April to the lowest in 3 months.

• Monthly sales have dipped in 14 out of the last 15 months.

• On a year-over-year basis, sales are down 23% and have shown a decline for 20 consecutive months.

• Meanwhile, the median price of those homes fell by the most in 11 years, declining 1.7% in April from a year earlier to $388,800.

Charlie Bilello

Stocks

Walt Disney Co. DIS has had an eventful few weeks.

• Earlier this month, the company was sued by Florida Governor Ron DeSantis over alleged state law violations related to its theme park operations.

• Now, it’s shutting down its luxury Star Wars-themed hotel for reasons that could be related to the suit.

• It also axed plans for a new $900 million corporate campus and the relocation of more than 2,000 employees.

• Separately, Disney announced plans to remove certain programs from its streaming services in cost-cutting measures meant to enhance profitability.

The S&P 500 SPY closed at its highest level of the year yesterday.

• Investors shrugged off hawkish comments from Fed officials on optimism of a debt-ceiling resolution as early as next week.

• The index closed at its highest since August while its tech-heavy counterpart–the Nasdaq–similarly reached new YTD highs.

• Gains were driven by Big Tech where Alphabet GOOGL, Apple AAPL, Microsoft MSFT, Nvidia NVDA, and Netflix NFLX all notched new 52-week highs.

• BofA strategist Michael Hartnett, however, isn’t sold on the breakout: he advises selling the S&P at 4,200, pointing to an AI “baby bubble” and a Fed that isn’t done hiking.

Meanwhile, the rise in popularity of 0DTE (zero days to expiry) options is affecting the overall behavior of the market.

• New studies show the phenomenon is making the market more volatile on a minute-to-minute basis while having little progress day-to-day.

• These options may be making the market more susceptible to intraday turnarounds, or mean reversions.

• 0DTE options now account for more than 40% of the total options volume for the S&P 500.

University of Utah

Energy

Crude oil prices are headed for their first weekly gain in over a month.

• As with stocks, fading risk of a US default is outweighing fears of potential rate hikes which would hurt demand.

• Additionally, Chinese oil refinery throughput data from April indicate strong domestic demand for fuel.

Earnings

Yesterday’s highlights:

Walmart WMT: $1.47 EPS (vs. $1.32 expected), $152.30 billion in sales (vs. $148.76B expected).

• Q1 revenue rose ~8% YoY as grocery and online sales offset weakness in clothing and electronics.

• The retailer also lifted profit and revenue guidance, expecting earnings of $6.10-6.20 on a 3.5% increase in net sales for the fiscal year.

• CFO John David Rainey: “there is some strain on the consumer, but the resilience has surprised us.”

What we’re watching today:

• Deere DE

• RBC Bearings RBC

• Catalent CTLT

• FootLocker FL

Top Headlines

• ChatGPT app: OpenAI has launched a ChatGPT app for the iPhone–iOS users can download here.

• AI caution: Apple is restricting the use of ChatGPT and other AI tools due to concerns about potential data leaks.

• AI leak: After Meta gave a limited number of researchers access to AI software in February, someone posted the code publicly.

• AI chips: Separately, Meta revealed its custom computer chips for AI tasks.

• Debt-limit votes: House Speaker McCarthy and Senate Majority Leader Schumer say an agreement could be reached next week.

• Disaster warning: Ray Dalio is warning the US debt and lack of spending controls will lead to a “disastrous financial collapse”.

• Leadership change: Lazard CEO Ken Jacobs will step down to make way for deputy Peter Orszag.

• Contrarian outlook: Goldman Sachs CEO David Solomon disagrees with markets’ outlook on rates and inflation.

Crypto

Prices as of 4 pm EST, 5/18/23

• COIN expands reach: Coinbase’s COIN zero-free subscription service Coinbase One has launched beta testing in the US, UK, Germany, and Ireland.

• Hong Kong: HashKey Group is looking to gain unicorn status with a $200 million raise at a $1 billion valuation.

• BTC vouchers: Jack Dorsey led a $6 million round for Azteco, a Bitcoin voucher service.

• Visa x Goerli: Visa is experimenting with account abstraction by deploying “Paymaster” smart contracts on Ethereum’s testnet.

• Competing bills: US lawmakers met to discuss two stablecoin bills during a House Financial Services Committee hearing yesterday.

Deals

• BABA cloud: Alibaba BABA says it will spin off its $12 billion cloud division in a new listing.

• BABA team: To oversee 6 new yet-to-be-created business units, Alibaba is splitting up its investment team.

• Flagship D2C: ESPN is preparing to offer its channel directly to consumers as a subscription-streaming service.

• India CRE: Brookfield India REIT is expanding its portfolio with a $1.4 billion acquisition of 2 India properties.

• Agro IPO: Global agricultural company Syngenta will attempt a Shanghai IPO after abandoning plans to list on China’s STAR Market.

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