Stock bulls have again taken the reins with all three major indexes starting the week in positive territory, including new record closing highs for the S&P 500 and Nasdaq.

For the S&P 500, this is the 30th record high set this year and the Nasdaq’s fifth record setting close in a row. Big tech megacap stocks continue to lead, which is also  creating more debate about “extreme market concentration” among just a handful of companies.

Bears believe that stocks are in a bubble created by excessive hype over artificial intelligence. Many are pointing to indications that retail investors are starting to flood back into the market, including the return of “meme stocks” as well as earnings results from online trading platforms that suggest a significant uptick in trading activity.

Big stock splits from Nvidia (10-for-1 on June 7) and Broadcom (10-for-1 upcoming on July 15) are also believed to be luring more retail investors. Wall Street insiders tend to get nervous when small investors start piling into stocks because they view it as sign that the market is peaking.

Retail investors only started to return to stocks earlier this year after bailing when the market began to slip in 2022. Bears warn that the big gains in tech stocks are likely luring retail money, helping contribute to the “bubble” and setting the sector up for a hard crash if a pullback sparks a bigger panic among small investors that still have painful memories of 2022’s downturn.

Bulls argue that the megacap tech companies deserve their elevated valuations as they are the ones fueling a technological evolution that will need to be adopted by nearly every business on the planet.

Historically, the early stages of a new technology do result in heavy market concentration because only a handful of companies are usually on the ground floor of any new cutting-edge innovations. What’s more, bulls point out that one part of the economy often dominates for long periods, such as railroads in the mid-1800s and now the tech sector since around 2014. In 2014, there were only two technology stocks in the Top Ten. By April 2024, the only two companies that were not technology stocks were Berkshire Hathaway and Eli Lilly.

One thing that many Wall Street insiders do agree on is that it’s tougher to “beat” the market when only a handful of stocks are responsible for overall gains.

Today, investors are anxious to see May Retail Sales. Wall Street is looking for a mild +0.3% gain versus a flat reading for April.

Investors will be paying close attention to details, particularly to the “ex-vehicles and gasoline” component which slipped -0.1% last month, indicating an outright decline in goods spending. Business Inventories and Industrial Production are also due out today. Wall Street will also be digesting remarks from a slew of Fed officials scheduled to speak today.

Putin to Visit North Korea First Time in Nearly Quarter Century:  Russian President Vladimir Putin will visit North Korea for a two-day visit starting Tuesday where he is expected to meet North Korean leader Kim Jong Un for talks as they deepen their alignment in the face of separate, intensifying confrontations with Washington. There are growing concerns about an arms arrangement in which Pyongyang provides Moscow with badly needed munitions to fuel Putin’s war in Ukraine in exchange for economic assistance and technology transfers that would enhance the threat posed by Kim’s nuclear weapons and missile program. Military, economic and other cooperation between North Korea and Russia have sharply increased since Kim visited the Russian Far East in September for a meeting with Putin, their first since 2019. Keep in mind, any weapons trade with North Korea would be a violation of multiple U.N. Security Council resolutions that Russia, a permanent U.N. Security Council member, previously endorsed.  Source AP

Wall Street is Tripping Over Itself to Lift S&P 500 Outlooks: Gains in the shares of American technology giants are likely to keep pushing the S&P 500 Index to new highs, says Citigroup Inc.’s Scott Chronert. The bank’s US equity strategist boosted his year-end forecast for the stock benchmark on Monday, to 5,600 from 5,100. He cited continued strength in the so-called Magnificent Seven stocks and expectations for earnings growth to extend to other S&P 500 companies. Citigroup is the third firm since Friday’s close to lift its forecast for the gauge, joining Goldman Sachs Group Inc. and Evercore ISI as US stocks keep climbing to records. The trio are now among the most bullish on Wall Street, projecting an advance of some 2% or more from current levels, while the average forecast calls for a decline. The rush to turn bullish echoes last year, when the S&P 500’s double-digit return caught Wall Street prognosticators off guard. Citigroup’s upgrade comes after Evercore’s Julian Emanuel raised his year-end S&P 500 forecast to 6,000 on enthusiasm over artificial intelligence, in an about-face from his previous target of 4,750, which called for a correction before 2024 closes out. On Friday, Goldman’s chief US equity strategist, David Kostin, boosted the firm’s year-end S&P 500 target for a third time, a month after he said he saw no room for upside in the benchmark.  Source Bloomberg

Share of “Double Haters” Hits Historic High: A quarter of Americans hold unfavorable views of both President Biden and former President Trump — the highest share of "double haters" at this stage in any of the last 10 elections, according to new Pew Research data. The closely watched bloc has nearly doubled in size since 2020, making this fall's Trump vs. Biden rematch the most dreaded election in modern political history. Top strategists say the race is likely to be decided by 6% of voters in six swing states. Many of them will hold their nose and pick a candidate they dislike in November. Robert F. Kennedy Jr. claims to be on the ballot in several of those states, offering a third-party option that both the Biden and Trump campaigns are scrambling to neutralize. Whichever candidate can mobilize more "double haters" to back them in November could have a decisive advantage in the Electoral College, given the razor-thin margins. Between 1988 and 2012, at least one of the major party nominees had a favorability rating over 50%. Both Trump and Biden will be lucky to draw much higher than 40% by the time they're nominated this summer. Source Axios

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Freight Markets Under Pressure Again in May: Freight shipments and total freight spend remained under pressure again in May, according to data from Cass Information Systems. Shipments in May were flat with April but down 5.8% year over year (y/y). The y/y decline was 1.8 percentage points more pronounced than in April, and when adjusting for seasonal trends, the shipments index was off 3.1% sequentially to a 46-month low. The Monday report noted “ongoing softness in for-hire demand” as loads normally pegged for the for-hire market are being insourced by private carriers. It also said shippers consolidating less-than-truckload shipments into single truckload moves is weighing on the index. The y/y decline in shipments during May was nearly double the drop previously forecast. The index is now expected to decline 4% y/y in June, with a “similar decline for the full year.”  Source Freightwaves

Treasury, IRS Unveil Plan to Close “Major Tax Loophole”: The U.S. Department of the Treasury and the IRS on Monday unveiled a plan to “close a major tax loophole” used by large, complex partnerships, which could raise more than an estimated $50 billion in tax revenue over the next 10 years. The plan targets so-called “related party basis shifting,” where single businesses operating through different legal entities trade original purchase prices on assets to take more deductions or reduce future gains, according to the Treasury. After a year of studying the basis-shifting issue, the agencies announced their intent to issue proposed regulations. They also released a revenue ruling on related-party partnership transactions involving basis shifting without “economic substance” for the parties or “substantial business purpose.”  Source CNBC

McDonald’s Kills AI Drive-Thru After Snags: McDonald's is killing its experiment with AI drive-thru order handling — at least for now — after social media reports of bizarre mistakes. The fast-food giant was betting on AI as a way to simplify and expedite the drive-thru experience. The "automated order taking" (AOT) system started in 2021 was a partnership with IBM. It was in place at more than 100 locations, Restaurant Business reported. Customers had reported a slew of AI ordering blunders. One posted video of the system incorrectly believing she'd ordered hundreds of dollars of chicken McNuggets. In another case, a customer was given an ice cream cone topped with bacon. The snafus call into question whether AI is ready to handle certain everyday human tasks.  Source Axios

Midsize Companies Are Big Business for Wall Street’s Megabanks: America’s biggest bank has a thing for midsize companies. Known for financing and advising megamergers, JPMorgan Chase is spending more of its resources on doing deals for companies valued at $2 billion or less. The goal is to leverage the relationships it has with the roughly 30,000 U.S. businesses—names such as fast-casual restaurant chain Cava Group and virtual driving-range operator Topgolf—that get their checking accounts, lines of credit and payment processing from JPMorgan’s commercial bank. JPMorgan wants to provide them with investment-banking products and services when they need a loan, decide to go public or are acquired by a private-equity firm. Big banks are moving deeper into territory normally reserved for smaller lenders. Many companies shifted their deposits to bigger banks during last year’s banking crisis, and some regional banks have scaled back lending as they adjust to the impact of higher interest rates. Meanwhile, big banks are going head-to-head with specialized boutiques, recognizing that advising on smaller deals helps them win repeat business from companies as they grow. There is another benefit for big banks: Midsize companies are a favorite target of private-equity firms. Source WSJ

Car Trade-Ins are Underwater By Record Amount: Car payments have skyrocketed in recent years due to a combination of high prices and high interest rates. While some relief may come soon, industry insiders say prices may still remain high for quite some time. As of May, customers were paying, on average, $760 a month for an auto loan, according to Moody’s Analytics. While that is a drop from a high of $795 in December 2022, it is still a roughly 40% increase over the $535 average payment in May 2019. A near-record 17% of car owners are paying more than $1,000 a month, according to Edmunds, slightly down from the record of 17.9% in the fourth quarter of 2023. Many customers who bought vehicles at high prices in the middle of the Covid-19 pandemic are now “underwater” or have negative equity — meaning the loan on their car is larger than what the car is worth — by a record amount. In the first quarter, 23% of customers with trade-ins had negative equity of more than $6,167 on average, according to Edmunds. Trading in a vehicle with negative equity often means the consumer rolls that balance owed into the new auto loan. Steeper payments on that new car can create a kind of vicious cycle that dog consumers for much of their lives, according to Edmunds Senior Director of Insights Ivan Drury. “You’ve never actually paid off a vehicle,” said Drufy. “That means you’re constantly paying for something you don’t even own anymore.” Source CNBC

Parents Taking on Debt to Fund Disney Vacations: A new survey shows that almost half of parents are going into debt during a Disney vacation. Conducted by LendingTree, the survey found that 24% of all Disney-goers have accrued debt during their trips, along with 45% of parents with children under the age of 18. The average amount of debt for those parents was $1,983, LendingTree said. Concessions were the biggest driver of excessive spending, with 65% of respondents citing the high cost of food and beverages. Additionally, 48% of respondents said that they had not budgeted enough for transportation, and 47% cited accommodations. LendingTree found that a stay at a Disney World resort hotel for two adults and two children could range as high as $1,079 a night – the biggest cause of debt. Notably, 75% of respondents said that their Disney trip did or would take six months or less to pay off. Even so, 59% of parents expressed no regrets.  Source USA Today


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