The US Treasury will get a cash infusion from tax payments on June 15 but Treasury Secretary Janet Yellen has said it is highly unlikely that her agency will be able to pay the country's bills that come due in the first part of the month. Meaning the US could run out of cash before the 15th, resulting in things like government salaries, social security, and US debt obligations going unpaid until that money comes in.
Even then, that cash won't go very far. Wall Street does not necessarily believe government officials will let the US default but investors do have a tendency to "throw a tantrum" of sorts when Washington pushes these battles too close to the edge.
Keep in mind, we are coming up on a three day holiday weekend in observance of Memorial Day, with markets closed on Monday, May 29. If Washington doesn't strike a deal by Friday, investors may choose to ditch stocks in order to avoid any potential fallout resulting from the gridlock continuing into next week.
Beyond the debt ceiling fight, there is still a great deal of uncertainty surrounding upcoming Federal Reserve policy moves as official continue to warn that more rate hikes may be necessary. A new report released yesterday concluded that the tight US labor market and rising wages are having a more pronounced impact on inflation.
Meaning the Fed may need to focus its efforts on increasing unemployment and risk throwing the economy into recession in order to bring prices under control.
Most bulls still believe recent data indicates the economy is indeed cooling and inflation is following, albeit slower than most have been hoping. However, bulls also argue that economic data still doesn't reflect much of the "disinflation" that has occurred in key areas such as housing and that the Fed runs the risk of over-tightening and inflicting even more economic damage.
The "minutes" from the Fed's last meeting will be released today and may provide more details into the central bank's current decision-making process.
On the earnings front, Analog Devices, NVIDIA, and Snowflake are today's highlights.
UPS Strike Looms Over a World Reliant on Everything Being Delivered All Day Everywhere: UPS delivers millions more packages every day than it did just five years ago and its 350,000 unionized workers, represented by the Teamsters are still seething about a contract they feel was forced on them in 2018. In an environment of energized labor movements and lingering resentment among UPS workers, the Teamsters are expected to dig in, with the potential to cow a major logistical force in the U.S. The 24 million packages UPS ships on an average day amounts to about a quarter of all U.S. parcel volume, according to the global shipping and logistics firm Pitney Bowes, or as UPS puts it, the equivalent of about 6% of the nation’s gross domestic product. Higher prices and long wait times are all but certain if there is an impasse, leaving some logistics experts to say we need to brace ourselves for "Supply Chain Breakdown: The Sequel." Annual profits at UPS in the past two years are close to three times what they were before the pandemic. The Atlanta company returned about $8.6 billion to shareholders in the form of dividends and stock buybacks in 2022, and forecasts another $8.4 billion for shareholders this year, something to which the Teamsters say frontline UPS workers deserve some of that windfall. Source MarketWatch
America's Growing Rent Burden: Rent continues to increase faster than incomes around the country, putting additional pressure on inflation-burdened households. The median renter in the U.S. would need to spend 29.6% of their monthly income on an average rent in the first quarter of 2023, per a report from Moody's Analytics . That's an "uncomfortably high" ratio. Interestingly, it's still cheaper to rent than buy in the vast majority of the U.S. According to a Redfin report out last week, there are only four major metro areas in the U.S. where a typical home has a lower monthly mortgage cost than its estimated rent. Back in 1999, New York City was the only "rent-burdened" metro area in the U.S., as renters typically paid 54% of their income for rent. By the end of last year, there were seven metros in that pricey club, including New York City 68%, Palm Beach, Fort Lauderdale, Miami, FL 42%, Northern New Jersey 33%, Boston, MA 33%, and Los Angeles, CA 35% Source Axios
GM Making All-Electric Cadillac Escalade: GM has announced it’s working on an all-electric version of the luxury full-size Cadillac Escalade SUV, called the Escalade IQ. The last Escalade the company released was its largest and longest ever, but we’ll have to wait and see what the new IQ will look like. The current gas-powered Escalade starts at more than $80,000, but considering GM’s huge bummer EV starts at $111,000, we’d expect the Escalade IQ to be more expensive. Source The Verge
Chevron Deal Complicates Oil M&A Narrative: A deal announced by Chevron to buy midsize oil and gas producer PDC Energy for $6.3 billion this week is not a clear signal that energy companies are about to launch into a wave of large-scale mergers and acquisitions, analysts said. But some aspects of the deal could point to a different path to industry consolidation than Wall Street had expected. First, it’s important to note that M&A is definitely on the minds of people in the industry today. Oil and gas stocks are stuck in a rut because earnings are no longer growing, and deals are considered one way to break them out of that rut. Recently much of the M&A in oil and gas has involved public companies buying private companies or buying acreage from them. That said, the PDC deal does open up some new possibilities for M&A that analysts are watching. For one thing, PDC mostly drills in Colorado, an area that has mostly been overlooked by Wall Street. There are many more operators in the Permian than in Colorado, but the fact that Chevron bought acreage in Colorado could make companies that operate there more valuable. Also, the fact that Chevron bought a smaller player could mean such operators are becoming attractive acquisition targets, one analyst said. Source Barrons
Midsize Pickup Trucks are the Latest Battleground for US Automakers: Size matters. Just ask America’s largest automakers. Ford, General Motors, and Toyota are among those increasingly looking to capitalize on the growing midsize pickup truck segment: vehicles big enough to command high price tags but small enough to protect profit margins. The small pickups have evolved from entry-level work trucks into pricey, capable and highly profitable models that can cost more than $60,000 — in line with luxury vehicles from BMW, Cadillac and others. Midsize pickup trucks are following the lead of their larger, full-size counterparts such as the Ford F-150, Chevrolet Silverado and Toyota Tundra. They’ve become more capable, larger and pricier, with an influx of new luxury and off-road variants, and special features. Over the past decade, traditional midsize pickup truck sales have more than doubled to represent 4.4% of U.S. vehicle sales last year — up from a minuscule 1.6% in 2013, and the highest level since 2005, according to Edmunds. The average price paid for one of the vehicles is likewise rising: During the past decade, the average price increased +53% from about $28,100 to more than $42,000, Edmunds reports. That price growth is +3 percentage points stronger than the overall industry. Source CNBC
California Advances Bill Banning Hedge Fund Water Profiteering: California lawmakers advanced a bill that would prohibit hedge funds and other institutional investors from buying and selling agricultural water resources for financial gain. Under the measure, speculation or profiteering by investment funds in the sale, transfer or lease of water rights on agricultural land would be considered a waste or unreasonable use of water. In a legislative analysis, the bill’s sponsor, California Assembly member Rebecca Bauer-Kahan, cited a recent Bloomberg Green investigation that showed how institutional investors have purchased agricultural land and used diminishing groundwater supplies to grow almonds and pistachios at a significant profit, drawing down aquifer levels as nearby household wells dried up. Western Growers Association and other agricultural trade groups opposed the bill, saying that it would “prohibit a potential solution afforded by private capital invested in developing reliable supplies,” the bill analysis said Source Bloomberg
The Exodus From Big Cities Is Slowing: The pandemic exodus from big cities thinned or reversed course in 2022, recent data suggests. Changing work norms and upheaval in the housing market are among the possible reasons for the switch. Several of the nation’s economic powerhouses lost population more quickly than other cities in 2021, the census bureau’s data suggests. There are plenty of reasons why a place’s population might change, but the drop between 2020 and 2021 coincided with the rise of remote work and a decline in mortgage rates to historically low levels. That helped boost home buying outside of dense city centers. But things started to shift the following year: the ability to work from home became a point of contention between employees working remotely and employers calling for a return to the office. Mortgage rates started to climb—first slowly, then suddenly—disincentivizing moves for many, particularly those who bought or refinanced earlier in the pandemic. And the ultrahot pandemic housing market, which had seen home prices soar as buyers competed over a scarce supply of houses, began to cool. Source Barrons
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