May 19th Pre-Market

Good Morning

Not a ton of new catalysts this week. Chip names are still getting sold, bond yields are stuck near highs, and the Iran ceasefire talk hasn't convinced anyone yet with the index’s slightly red in pre-mkt.

Everyone keeps saying the chip selloff is "healthy." Maybe/probably. But when the 10 year is at its highest level in over a year and foreign governments are dumping Treasuries, I want to see Nvidia's numbers before I believe that. I’ll keep watching $SOXX as the all seeing eye.

Let's dig in...

Today's Big Picture

1. Chip Selloff Deepens Heading Into Nvidia Earnings

Semiconductors are down for a second straight day (preMarket) as investors take profits on the AI trade. Seagate warned about demand Monday and memory names followed it lower. The Philadelphia Semiconductor Index has been crushed over two sessions and Nvidia reports tomorrow with sky high expectations. If the biggest chip company in the world can't justify these valuations tomorrow night, what company can? So far Nvdida has been a money printing machine in this Ai/chip run.

2. Foreign Central Banks Are Exiting Treasuries

Japan sold roughly $47 billion in Treasuries in March. China cut holdings to the lowest since 2008. Central banks are liquidating dollar reserves to defend currencies against the oil shock from the Gulf war. Total foreign holdings fell $240 billion in one month, and that is before the April data when currency intervention likely picked up. This is really more of what I covered in Sunday’s article.

3. Oil Dips On Trump's Iran Pause, Yields Tell A Different Story

Trump paused a planned strike on Iran at the request of Gulf leaders and said there's a "very good chance" of a nuclear deal. Brent pulled back toward $110 on the headlines. The bond market has stopped reacting to diplomatic optimism. The 10 year is sitting above 4.6%, a Reuters poll shows most economists expect no rate cuts this year, and futures markets are pricing a possible hike by January.

Market Overview

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Stock Spotlight (pre-market)

Home Depot $HD ( ▲ 0.39% )  

Beat earnings on both lines and reaffirmed full year guidance. But comp sales came in short of what the Street wanted, and gross margins missed. Estimates had already been cut in recent months so this was a low bar to clear. Stock barely moving in premarket.

CoreWeave $CRWV ( ▼ 3.82% )  

Down after Blackstone and Alphabet announced a $5 billion AI cloud venture built on Google's TPUs. This gives hyperscaler customers another option that isn't CoreWeave. Anyone who bought the IPO as a pure play AI infrastructure bet now has to reprice the competitive landscape. Nebius $NBIS ( ▼ 1.03% )  is getting sold in sympathy because the same logic applies to every independent AI cloud name.

Amer Sports $AS ( ▲ 1.57% )  

Beat with earnings of 38 cents versus a 31 cent consensus and revenue above expectations. Wilson and Salomon are both showing real consumer demand. This is one of the few discretionary names posting organic growth right now, which forces consumer PMs who have been hiding in staples to take a look.

ServiceNow $NOW ( ▼ 0.4% )  

Bank of America analysts said ServiceNow would benefit from AI, and gave the stock a buy rating yesterday, sending it up 8%. The business-software company's shares are up again premarket

Akamai Technologies $AKAM ( ▼ 5.99% )  

Down in premarket after announcing a $2.6 billion convertible bond offering. Existing shareholders are selling on dilution risk. Worth noting: management issuing converts at these yield levels signals they think the stock is undervalued relative to where they see rates heading.

What to Watch

IPO’s

MarketBeat did an excellent job on this free IPO guide.

Samsung Workers Strike (Thursday)

Unionized Samsung workers in South Korea plan to walk off the job. If the strike disrupts memory chip production,

Walmart Earnings (Thursday Before The Bell)

The clearest read on how the U.S. consumer is handling higher gas and rising food costs. If Walmart signals trade down behavior is accelerating, consumer discretionary has a problem. If the consumer is holding, the recession call stays off the table.

- John

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