"Recession? Nah" - Homebuilders, Probably

The U.S. now spends more money on servicing its debt than national defense.

Let that sink in.

Market

Prices as of 4 pm EST, 5/16/23

Macro

US factory output bounced back in April.

• Industrial and manufacturing production both rose more than expected, increasing by 0.5% and 1%, respectively.

• The gains were driven by the largest jump in auto production since October 2021.

• Capacity utilization also increased to a 5-month high of 79.7%.

• On the other hand, recent ISM and regional survey data suggest manufacturing is slowing down.

US homebuilder sentiment improved to its highest level in 10 months in May, returning to neutral (i.e. 50) for the first time in nearly a year.

• It was the 5th consecutive month of growth for the index.

• Driving the gain was a lack of existing supply and strong demand for new construction.

• The latter currently represents 33% of the former (compared to the historical average of 13%).

After back-to-back months of declines, retail sales rebounded in April, albeit less so than expectations.

• Consumer spending accounts for roughly 2/3 of GDP.

• Sales increased 0.4% on the month (vs. 0.8% expected) as consumer spending holds steady despite rising prices and high interest rates.

• Seven out of 13 categories saw growth.

• On an inflation-adjusted basis, however, retail sales have been flat for ~2 years.

Stocks

Less than a week after announcing several AI advancements, Alphabet has launched 2 new AI-powered tools aimed at biotech and pharma.

• Target and Lead Identification Suite assists in predicting and understanding protein structures.

• Multiomics Suite helps researchers manage and analyze large swaths of genomic data.

• Both aim to accelerate the drug development process.

Tesla held its annual shareholder meeting yesterday—these are the key takeaways:

• Former exec JB Straubel was elected to the company’s board of directors despite concerns he wasn’t away long enough to be considered “independent”.

• Elon Musk and Chairwoman Robyn Denholm were also reelected to the board.

• Shareholders rejected a proposal to prepare and maintain a publicly disclosed key-person risk report.

• They also rejected a proposal to issue a report on eradicating child labor from its cobalt supply chain.

• Musk says Tesla plans to deliver the first Cybertrucks later this year.

BofA released its latest Global Fund Manager Survey—here are some highlights:

• 65% expect a weaker economy ahead.

• Long big tech and short US banks is considered the most crowded trade.

• Most respondents are underweight US equities.

• They are most overweight bonds, staples, and cash.

• Bond allocations are now at their highest since 2009.

Energy

The International Energy Administration (IEA) raised its global oil demand forecast to 102 million barrels per day.

• The agency points to a strong recovery in Chinese demand as the leading factor for the increase.

• Recent industrial output and retail sales data in the region, however, have fallen short of expectations.

• Meanwhile, US inventories of crude oil increased by ~3.7 million barrels last week.

Earnings

Yesterday’s highlights:

Home Depot HD: $3.82 EPS (vs. $3.80 expected), $37.26 billion in sales (vs. $38.28B expected).

• Arguably America’s most important retailer, HD suffered its worst revenue miss in over 20 years.

• The company pointed to plunging lumber prices and extreme weather as major headwinds to sales in Q1.

• It also lowered its outlook for 2023, expecting sales to fall 2-5% which would mark the first annual decline in 14 years.

• CEO Ted Decker: 2023 will be a “year of moderation”.

What we’re watching today:

• Cisco Systems CSCO

• TJX Companies TJX

• Target TGT

• Synopsys SNPS

• ZTO Express ZTO

• Take-Two Interactive TTWO

• Sociedad Quimica SQM

• Dynatrace DT

• Wix.com WIX

• Stoneco STNE

• DLocal Limited DLO

• Top Headlines

• Debt ceiling: House Speaker Kevin McCarthy said yesterday’s meeting with President Biden was “a little more productive”.

• Figure it out: More than 140 top executives signed a letter urging political leaders to act swiftly to avoid a debt default.

• Banking blame: Former SVB and Signature Bank execs were grilled by Senators yesterday.

• Negative goodwill: UBS expects a ~$17 billion hit from its emergency takeover of Credit Suisse.

• Interactive disinformation: OpenAI CEO Sam Altman urged US lawmakers to regulate AI technology.

• Rate cuts: JPMorgan expects the Fed to lower interest rates by Q3 as the economy faces an inevitable recession.

• Venture performance: VC funds posted negative returns for 3 straight quarters last year.

• Relocating: The share of job seekers relocating for new jobs in the US reached a record low of 1.6% in Q1.

Crypto

Prices as of 4 pm EST, 5/16/23

• Crypto lending: DeFi lender Compound Finance is launching on Ethereum L2 Arbitrum.

• XRP win: Ripple has won its battle against the SEC’s attempt to seal the “Hinman Speech documents”.

• Open arms: France’s Financial Markets Authority says crypto firms looking to leave the US are welcome in the country.

• COIN expansion: Coinbase is expanding its services in Singapore as it faces regulatory pressure in the US.

• Gambling: The UK Treasury Committee says crypto assets should be regulated in the same way as casinos.

Deals

• Buyback: Sony is planning a $1.5 billion buyback of its shares in response to weak global consumer spending.

• Debt offering: Pfizer will raise $31 billion from a debt offering to fund its acquisition of Seagen.

• Fashion: Chinese online fashion giant Shein raised $2 billion in its latest round at a valuation approximately 33% lower than a year earlier.

• Sleep tight: Tempur Sealy will consolidate control in the mattress industry with a ~$4 billion acquisition of Mattress Firm.

• Technical knockout: The new combined Endeavor and WWE entity will be called TKO Group Holdings.

Meme Of The Day