May 19th Market Overview

Happy Monday.

Mixed market action today as everyone digested the weekend Moody's downgrade of U.S. debt. Jamie Dimon warned that markets might be too relaxed about tariff effects, I share his concerns but also think Tariff deals are going to solidfy here pretty soon (within 3 months) He suggested a possible 10% drop when companies feel the full impact.

Today’s sponsor sells gold 😎

Let's dig in...

Executive Summary

1. Moody’s downgraded U.S. debt from Aaa to Aa1, projecting federal debt to reach 134% of GDP by 2035.
   

2. President Trump’s tax bill cleared a key hurdle in the House Budget Committee despite projections showing trillions added to the deficit, intensifying fiscal concerns.
   

3. JPMorgan Chase CEO Jamie Dimon warned markets are showing “extraordinary complacency” about tariff impacts, suggesting a potential 10% correction as companies face margin pressure.
   

Market Overview

Key Market Drivers

1. Credit rating pressure - Bank of America analysts note “forced selling on indices or bonds as a result of the downgrade is very unlikely” while Morgan Stanley’s Mike Wilson characterized any dip as “a buying opportunity.”
   

2. Fiscal policy concerns - Deutsche Bank strategist Jim Reid highlighted “no signs of any serious deficit restraint” in the advancing legislation, raising questions about long-term debt sustainability.
   

3. Corporate tariff responses - Citigroup CEO Jane Fraser wrote that CEOs are delaying major decisions while preparing for tariff effects, adding that while 10% import taxes can be absorbed, levies of 25% or more will force significant changes.
   

4. Fed policy signals - New York Fed President John Williams indicated tariff uncertainty has paused business investment, while Atlanta Fed’s Raphael Bostic told CNBC he’s “leaning toward one cut this year” amid rising inflation expectations.
   

Stock Spotlight

UnitedHealth Group $UNH ( ▼ 2.08% ) shares rallied, marking the stock’s best two-day performance since March 2020. Today’s trading volume was more than twice its 30-day average as investors reassessed last week’s selloff following guidance suspension and CEO departure.

International Business Machines $IBM ( ▼ 0.96% ) reached a new all-time high. The stock has outperformed nearly every “Magnificent Seven” member over the past 12 months with a 59% gain, trailing only Tesla’s 90% surge.

Nvidia $NVDA ( ▲ 0.78% ) announced a partnership with Foxconn, TSMC, and Taiwan’s government to build an AI supercomputer.

Digital Realty Trust $DLR ( ▲ 0.4% ) received Bank of America’s top data center pick designation for 2025. Analysts cited strong AI-related bookings pipeline and strategic positioning as the sector benefits from structural demand.

Charter Communications $CHTR ( ▼ 1.33% ) was upgraded to Buy by Loop Capital following its Cox Communications merger announcement. The firm cited accretive transaction benefits, reduced leverage, and early traction for the Life Unlimited rebrand combining broadband and mobile offerings.

Big Name Updates

Walmart $WMT ( ▼ 0.52% ) faced pressure after President Trump stated the retailer should “eat the tariffs” rather than raise prices. Treasury Secretary Bessent indicated after discussions that Walmart’s CEO suggested the company would absorb some tariff costs.

Netflix $NFLX ( ▼ 0.56% ) received a downgrade to Neutral from JPMorgan despite a price target increase to $1,220.

Apple $AAPL ( ▼ 0.36% ) won’t feature significant Siri upgrades at next month’s WWDC according to Bloomberg’s Gurman. Evercore maintained an Outperform rating with a $250 target, viewing services headwinds as manageable.

Microsoft $MSFT ( ▲ 0.51% ) is pushing development of AI agents designed specifically for enhanced collaboration capabilities and improved memory functions.

Other Notable Company News

Qualcomm $QCOM ( ▼ 2.6% ) will develop custom data center CPUs connecting directly to Nvidia’s AI chips, challenging Intel and AMD as Nvidia’s GPU dominance expands.

Reddit $RDDT ( ▲ 2.58% ) was downgraded by Wells Fargo to Equal Weight with a lower $115 price target. Analysts believe search traffic disruptions are becoming permanent as Google integrates full AI features in search.

Delta Air Lines $DAL ( ▲ 0.48% ) received an upgrade to Buy from UBS, which raised its price target to $66. The firm highlighted Delta’s strong positioning to benefit from corporate and premium travel recovery.

Alibaba $BABA ( ▼ 1.71% ) shares declined following reports of U.S. scrutiny regarding the company’s AI partnership with Apple.

Supermicro $SMCI ( ▼ 0.79% ) announced it’s accepting orders for over 20 AI systems powered by Nvidia’s new RTX PRO 6000 Blackwell Server Edition GPUs/

Warner Bros Discovery $WBD ( ▲ 0.78% ) may expand its sports holdings as BT nears a deal to sell its 50% stake in TNT Sports to the company.

Sector Watch

Bond Market

The Treasury market experienced volatility following Moody’s downgrade. The 30-year yield touched 5.023%, its highest level since November 2023 and a threshold not consistently crossed since 2007.

This yield action reflects deepening concern about U.S. government borrowing capacity amid advancing legislation that could expand deficits.

• Longer-dated bonds faced the most pressure, indicating specific concern about long-term fiscal sustainability

• Gold prices pushed higher to $3,235 as investors sought traditional safe havens

• The dollar weakened, with the WSJ Dollar Index dropping to 96.47

Policy Watch

1. • White House economic adviser Stephen Miran suggested growth, tariff revenue, and deregulation could help address deficit concerns, contradicting CBO projections
   

2. • Treasury Secretary Scott Bessent warned that countries “not negotiating in good faith” would receive letters specifying U.S. tariff rates
   

3. • China has begun approving limited rare earth exports under new controls, but the slow pace is straining global supply chains, particularly for EVs and wind power
   

4. • Senators plan to vote tonight on advancing stablecoin regulation legislation (crypto)
   

What to Watch

1. Retail Earnings This Week: Home Depot , Target , and Lowe’s reporting, their tariff response strategies will be scrutinized following the Walmart controversy.
   • Listen for supply chain adjustment plans
   • Note any consumer spending pattern shifts in guidance
   

2. Housing Data Releases: After a difficult spring selling season, upcoming reports will show whether high mortgage rates continue suppressing activity.
   • Regional variations could indicate market divergence
   • Inventory levels may signal seller capitulation
   

3. Treasury Yield Stability: Monitor whether the 30-year yield stabilizes below 5% or continues climbing, potentially triggering broader market volatility.
   • Watch for MBS spread widening affecting mortgage rates
   • Fed commentary addressing long-end moves deserves attention
   

4. Nvidia’s Earnings Preparation: With Raymond James noting potential constraints from export restrictions, market positioning ahead of next week’s report will be critical.
   • Focus on gross margin trajectory toward mid-70% target
   • Blackwell production ramp details will shape second-half expectations
   
   Thanks for reading 🙂
   
   - John
   

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