Watch: After the Open | Updated Daily
Sign up for our content

Your Quiver | Tuesday, May 16, 2023

CIO | Nadine Terman @SolsteinCapital details what she's seeing in global financial markets.

Yellen About June 1

She’s back at it, freaking everyone out about June 1. Treasury Secretary Yellen is warning that “time is running out” and people’s lives “hang in the balance” to avert an economic catastrophe if the debt ceiling isn’t lifted. Biden’s supposed to go to Asia this week, but that may not happen if things aren’t resolved, which seems unlikely. They’ve got days and not months now. Yellen Judgement Day Countdown.

Some Like it Hot

US April Industrial Production was up 0.5%, versus expectations of 0%. US retail sales increased in April, showing that the consumer is hanging in there. It’s the first-time sales climbed in 3 mo. Sorry bond bulls, but with solid growth comes sticky inflation.

AI vs Money Managers

If you’re interested in the impact on the investment industry, you can check out this podcast: AI vs. Money Managers – Crash Course – with Aaron Brown (former Chief Risk Officer for ACQ) and Nir Kaissar (Founder of Unison Advisors). Interestingly, experts talk about areas that AI could replace humans and where it probably won’t. So far, they say that ChatGPT offers high conviction on wrong decisions. Plus, AI will give a first-mover advantage—which then will go away. They compare it to humans, who have gotten better at money management over the past decades—yet still have a hard time outperforming when everyone is getting better. So, some humans will be staying involved.

Taking Their Lumps

That’s what Home Depot is doing right now. Unfortunately, that strong consumer is not shopping at Home Depot. The co cut its outlook for the year after 1st quarter revenues declined more than expected. Management thought the year would have flat revenues, but now it expects a decline of -5% due to tighter monetary policy and tighter financial conditions—as well as lumber deflation, poor weather, and a lack of sellers in housing.

Best of Times, Worst of Times

If the crummy Home Depot ($HD) print and downcast commentary weren’t enough, the recent price action in pawn shops ($FCFS), dollar stores ($DLTR), WalMart ($WMT), speak volumes about the health of the consumer.

Conviction Will Be Tested

Fed Fund Futures still forecast a decline in rates by the Fed, with the associated curve forecasting continued easing through early 2025, with around 25bps cut per meeting. To get this cut, Fed members are going to have to be faced with a terrible economy, or investors will need to alter their expectations. In any case, equities probably would be pressured. Thanks to UBS for the chart below. Investors need to figure out whether they’re getting to August’s peak or headed down, but as of now it seems to bounce between 4100 and 4195. Friday’s “double witch” option expiration should keep the market on edge. If anything pushes shares down, then those with a short gamma portfolio may be forced to sell into the weakness.