May 22nd Market Overview

Happy Friday

Markets hit new highs today. Investors are buying tech and ignoring inflation fears. I think the market is under-reacting to how much consumers are struggling right now.

Let’s dig in...

Today's Big Picture

Diplomats Chase Peace In Iran 

A Qatari team flew into Tehran on Friday in coordination with the US to try to secure a deal. Traders are buying stocks on hopes that the Strait of Hormuz will reopen. Goldman Sachs says global crude stockpiles are shrinking at a record pace. A deal would take real pressure off gas prices, but Iran insists on keeping its enriched uranium, and that makes a quick resolution harder.

Quantum Gets $2 Billion In Government Backing 

The Commerce Department awarded $2 billion in grants to nine domestic quantum computing companies. IBM $IBM landed the biggest grant at $1 billion and will match it with $1 billion of its own to build the first dedicated quantum chip foundry in Albany, New York. France followed a day later with $1.16 billion of its own. This is an arms race now.

Consumer Gloom Deepens

Gas prices hit $4.55 a gallon right before Memorial Day weekend. The Michigan sentiment reading fell to 44.8, a new all-time low, below even the 2022 trough. Lower-income households and people without college degrees took the biggest hit. Record stock market. Record-low consumer confidence. Something has to give.

Market Overview

Index Performance

Stock Spotlight

Lenovo $LNVGY ( ▲ 18.22% )  
reported its fastest revenue growth in five years. AI revenue nearly doubled and PC sales were up 28 percent.

Dell Technologies $DELL ( ▲ 17.22% )  
hit an all-time high on the back of Lenovo's results. Both Dell and HP $HPQ report earnings next week, so the market is betting on a hardware upgrade cycle.

The Estee Lauder Companies $EL ( ▲ 11.62% )  
gained after walking away from a merger with Spanish beauty group Puig. Charlotte Tilbury's compensation demands reportedly killed the deal. Management says they want to run the turnaround solo.

Big Name Updates

Qualcomm $QCOM ( ▲ 11.14% )  
has now rallied more than 50 percent since its April 29 earnings. The chip trade keeps pulling money in.

Merck $MRK ( ▲ 5.65% )  
got strong Phase 3 results for a lung cancer treatment with Kelun-Biotech. The drug cut tumor progression risk by 65 percent when used alongside Keytruda.

Workday $WDAY ( ▲ 5.15% )  
beat expectations and raised its full-year margin outlook. Co-founder Aneel Bhusri officially returned as CEO during the quarter.

Other Notable Company News

IMAX $IMAX ( ▲ 15.05% )  
is exploring a sale through intermediaries. Still early stage.

BJ's Wholesale Club $BJ ( ▼ 8.8% )  
beat profit expectations. Comparable sales and membership fees both grew.

Booz Allen Hamilton $BAH ( ▲ 1.81% )  
beat earnings estimates at $1.78 versus the $1.32 estimate but came in light on revenue. The stock has been under pressure all year after Treasury canceled all 31 of its contracts in January.

GameStop $GME ( ▼ 2.58% )  
asked shareholders to approve a higher share count. This comes after Ryan Cohen's rejected $56 billion unsolicited bid for eBay $EBAY.

Campbell Soup $CPB ( ▲ 2.59% )  
is at 30-year lows. Net sales dropped 5 percent last quarter as consumers pulled back on snacks and condensed soups.

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Sector Watch

Bond Market

The 10-year yield eased to around 4.55 percent on Friday. The 30-year pulled back to just above 5.07 percent, off the weekly highs that spooked markets earlier.

• The 30-year touched its highest level since before the 2008 financial crisis this week

Policy Watch

Fed

Kevin Warsh was sworn in as Fed Chair this morning at the White House, the first to take the oath there since Alan Greenspan in 1987. Trump told him to be "totally independent," which is interesting given he then spent the next few minutes arguing the Fed should treat inflation as temporary and keep rates low.

The bigger story was Governor Christopher Waller. Speaking in Germany hours before the ceremony, Waller said inflation is not headed in the right direction and dropped a line that matters: he can no longer rule out rate hikes if inflation doesn't cool.

• Waller had been one of the more dovish voices on the board for the past year. That's a big deal.

• The market is now pricing in potential rate hikes. A few months ago it was pricing in cuts.

• Nordea strategists think the Fed holds at the next meeting because the committee can't agree on whether to cut or tighten.

Middle East

Iran says the latest US proposal "partly bridged the gap" but the Supreme Leader's insistence on keeping enriched uranium and a dispute over Strait of Hormuz tolls make a quick deal unlikely.

• Brent crude hovered around $103 to $104 a barrel, still down on the week

• Gas prices are up more than 50 percent since the conflict started on February 28

• Goldman Sachs says global crude and product stockpiles are shrinking at a record pace

International

• France committed $1.16 billion to domestic quantum computing, one day after the US announced its $2 billion program.

• China launched a crackdown on illegal cross-border securities trading. Futu $FUTU fell sharply after reports that brokerages moving money to foreign markets will face penalties.

• Japan's core inflation eased to 1.4 percent in April, well below the expected 1.7 percent. The yen weakened past 159 per dollar, near levels where Japanese authorities have stepped in before.

What to Watch

The AI company quietly automating every Walmart distribution center already has 23 billion in orders on the book

It's just one of seven names in this free MarketBeat report.

Dell And HP Earnings Next Week

Both stocks ripped on Lenovo's results today. Now they need to prove the PC demand story holds on their own numbers. If they disappoint, the giveback will be sharp.

Memorial Day Gas Prices 

Americans are paying the most at the pump since 2022 heading into the holiday weekend. If Iran talks stall, a $5 national average this summer is a real possibility.

SpaceX IPO On June 12 

Targeting a $1.75 trillion valuation, which would make it the largest float in history. John Blank at Zacks called the wave of mega-IPOs from unprofitable companies a potential market top signal.

Thanks for reading - you are now the more informed 🙂

- John

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