Good morning contrarians! It is Friday, May 12.
State of Play
As of 0625 there isn’t all that much going on:
Stock futures are pointing to small gains with the Nasdaq and S&P 500 up about 0.3% each;
Commodities are flat. WTI crude oil is unchanged at $70.80/barrel and copper isn’t moving at all;
Cryptocurrencies are down again, with Bitcoin off almost 4% to trade around $26,400;
Bonds are unchanged with the 2-year yield at 3.91% and 10-year at 3.41%.
Known Events
The University of Michigan’s consumer sentiment survey is the highlight of the day, out at 1000. There are two of these each month, with the second one pretty much just confirming what’s in the first. Today is the first reading for May, which makes it more important.
Economists expect a reading of 63, basically in line with last month’s 63.5. Not sure what the number means but the details of what respondents say is more important. The consumer expectations subindex will also be an interesting one to watch. Economists expect that to come in at 59.8, down from 60.5 last month.
Before that we’ll get import and export prices at 0830. This could be an important factor for inflation. Economists expect both to drop, by 0.6% month-over-month for imports and 0.3% MoM for exports, after printing (barely) positive last month. This would be the latest sign that inflation is abating on an international level as well, though there are of course other factors such as demand.
Narrative Emerging
Yesterday’s Producer Price Index confirmed what the Consumer Price Index said the previous day, which is that inflation is slowly dropping. This briefly led futures traders to price in a 99% chance the Fed will stand pat at its next meeting. That number has since dropped down to 90%, which is still an overwhelming majority.
The burgeoning hype around artificial intelligence certainly looks to be helping tech stocks. Google (GOOG 0.00%↑) this week unveiled its own AI tools to glowing reviews and more importantly a strong rally for its stock. Is this a passing fad or a legitimate force of growth for tech? Our podcast guest next week has some thoughts on this (foreshadow, foreshadow).
Yesterday was another bad day for regional banks, with the KRE 0.00%↑ dropping by 2.5%. Individual names got beaten up, especially PacWest (PACW 0.00%↑) which gave up 23%. Bank of Hawaii (BOH 0.00%↑) was down 10%. The catalyst for this was a disclosure by Pacwest that their deposits had dropped by almost 10% on the week. It weirdly didn't affect Western Alliance (WAL 0.00%↑), long seen as another problem child among the regional banks.
The Opportunity
There are various ETFs tracking AI stocks, or stocks that potentially stand to benefit from AI: BOTZ 0.00%↑, IRBO 0.00%↑, AIQ 0.00%↑, and ROBO 0.00%↑ are some. Worth pointing out that when it comes to most (all?) things tech, by the time you hear about it in the mainstream press it is probably already too late. Having said that, the hype train main still be in the early innings. It will be very interesting to see how it stands up when a recession hits.
The sell-off in regional banks yesterday may have created opportunities as well. These are now bouncing this morning. It’s impossible to time these things perfectly of course. If the worst is over for regional banks then it stands to reason that they will move at least somewhat higher from here. Of course, the question of whether the worst is over is an open one…
The Substack chat tracks the author’s trades in (almost) real time. The full portfolio is available upon request. Obviously this is not investment advice (duh). There may be other opportunities — and other pitfalls — not covered here. Do your own research, make your own decisions.
AI Hype Train, Inflation/Fed, Regional Banks