Wall Street investors are paying more close attention to US debt ceiling headlines with just one week left for lawmakers to strike a deal. The Treasury has pegged next Thursday, June 1, as the date the country may run into cash flow troubles, but House Speaker Kevin McCarthy yesterday said the two sides are still far apart on key issues.

For what it's worth, Fitch rating put the US on a "negative" credit ratings watch yesterday, citing "increased political partisanship" that is hindering progress. Fitch also said it doesn't believe lawmakers will arrive at a solution before the deadline and could begin to miss some payments. Investors are really wanting to see a deal inked by Friday, ahead of the three-day Memorial Day holiday weekend, as it will take a while for Congress to pass the legislation.

If they don't get their wish, Wall Street insiders are bracing for what could be a pretty ugly end to the week for stocks, as profits are banked and bulls move to the sideline. Many big investors were already treading cautiously amid uncertainties surrounding Federal Reserve policy, as well as concerns about the narrowness of stock gains this year, which have mostly been dominated by a handful of big tech names.

The "minutes" from the Fed's early-May meeting, released yesterday, didn't do much to clarify what lies ahead for interest rates with officials starkly divided over future increases. "Some" members felt inflation is coming down “unacceptably slow” while "several" believed signs of slowing economic growth made further tightening unnecessary.

Fed economists also reiterated their assumption that tighter credit following the bank turmoil earlier this year will likely push the economy into recession and eliminate the need for further Fed rate hikes.

Atlanta Fed President Raphael Bostic in an interview yesterday said that as inflation slows closer to the Fed's +2% target rate, stresses in the labor market are likely to occur. When that starts to happen, Bostic warned that the Fed won't be able to boost the labor market as it has typically done in the past because failing to get inflation down would be "much more problematic for the economy" than a higher unemployment rate.

As for the lack of breadth in stock market gains, the sudden appearance of Chat GPT and the potential of artificial intelligence has been a powerful catalyst. In fact, chatbot-themed investments are estimated to have added somewhere around +$1.5 trillion in stock market value this year. The sector concentration is blatantly evident in the major indexes with the tech-heavy Nasdaq up nearly +20% while the Dow is sitting on a loss of just over -1%. Needless to say, smart investors are extremely concerned about the risks of a major stock market crash if tech starts to crumble, especially considering that a large portion of the gains are built on the hype surrounding AI that could fade just as quickly as it arrived.

Today, investors will be digesting earnings results from Best Buy, Burlington Stores, Costco, Deckers Outdoor, Dollar Tree, Medtronic, and VMware. Economic data brings the second estimate of Q1 2023 GDP, the Kansas City Fed Manufacturing Index, and Pending Home Sales.

Goldman Sachs Sees Potential With Commodities After Largest ‘De-Stocking’ Ever Witnessed: Commodity prices have suffered an overall decline so far this year, with a recent decline in physical inventories, potentially giving way to strong gains in the sector if the economy avoids a recession, said economists at Goldman Sachs. Mounting concerns over the health of the financial sector, U.S. debt ceiling risks, fears of an impending demand slowdown in the West, and a disappointing recovery in China in April have contributed to fears of an upcoming U.S. or global recession, the Goldman Sachs economists, lead by Jeffrey Currie, wrote in a note dated Tuesday of this week. Currie added that the bottom line is that markets have cashed in on their insurance policies in the form of physical and financial hedges, meaning on net, that leaves the entire complex exposed to upside should recessionary risks not materialize. As of Wednesday's dealings, the S&P GSCI, a benchmark for investments in the commodity markets, was trading more than 10% lower year to date after posting gains in each of the past two years, and Goldman Sachs forecast a return of 30.3% in the S&P GSCI over the next 12-months. Source Marketwatch

Why 21-Year-Olds Are Playing Catch-Up to Previous Generation: Adults who are 21 are less likely than their predecessors four decades ago to have reached five frequently cited milestones of adulthood, having a full-time job, being financially independent, living on their own, getting married and having a child. By the time they are 25, however, today’s young adults are somewhat closer to their predecessors from 1980 on two of these milestones, having a full-time job and financial independence. In 2021, the most recent year with available data, 39% of 21-year-olds were working full-time, compared with 64% in 1980. And only 25% of people this age in 2021 were financially independent of their parents, compared with 42% being financially independent in 1980. Some argue that fewer 21-year-olds having full-time jobs is the result of an increase in college enrollment over the past four decades. Today, 48% of 21-year-olds are enrolled in college, whereas about 31% were enrolled in 1980, but recent data is starting to show this trend abating as well. Source Pew Research Center

Riding High on the AI Train, Nvidia's Sales Forecast Shatters Expectations: Sales in the three months ending in July will be about $11 billion, Nvidia said in a statement Wednesday. That shattered an average analyst estimate of $7.18 billion, sending the shares soaring in after hours trading. The outlook suggests that Nvidia is benefiting even more from the AI frenzy than thought possible. Under Chief Executive Officer and co-founder Jensen Huang, the company has positioned itself as the top provider of components for training artificial intelligence software. That’s helped it weather a broader slowdown in technology spending. “A trillion dollars of installed global data center infrastructure will transition from general purpose to accelerated computing as companies race to apply generative AI into every product, service and business process,” Huang said in the statement. The company is “significantly increasing our supply to meet surging demand” for its data center products, he said. Revenue in the first quarter beat estimates by the widest margin in five years. The company’s forecast for sales this period is 53% higher than analysts projected, and would be a record quarterly total. Source Bloomberg

Majority of Americans Have Heard of ChatGPT but Few Have Tried it: About six-in-ten U.S. adults (58%) are familiar with ChatGPT, though relatively few have tried it themselves, according to a Pew Research Center survey conducted in March. Among those who have tried ChatGPT, a majority report it has been at least somewhat useful. ChatGPT surpassed 100 million monthly users within two months of its public launch in late November 2022, setting a world record as the fastest-growing web application. Overall, 18% of U.S. adults have heard a lot about ChatGPT, while 39% have heard a little and 42% have heard nothing at all. Men are more likely than women to have heard at least a little about ChatGPT, as are adults under 30 when compared with those 30 and older. How ChatGPT should be used has been hotly contested. However, few U.S. adults have themselves used ChatGPT for any purpose. Just 14% of all U.S. adults say they have used it for entertainment, to learn something new, or for their work. Americans’ opinions about ChatGPT’s utility are somewhat mixed. People who have used it were asked about their experience with this chatbot. Roughly a third say it has been extremely (15%) or very useful (20%), while 39% say it has been somewhat useful. Around a quarter of those who have tried it say it has been not very (21%) or not at all useful (6%). Younger adults tend to find ChatGPT more useful than older adults. Source Pew Research

Meta Slashes Business Teams in Final Round of Layoffs: Meta Platforms, owner of Facebook, slashed jobs across its business and operations units on Wednesday as it carried out its last batch of a three-part round of layoffs, part of a plan announced in March to eliminate 10,000 roles. Dozens of employees working in teams such as marketing, site security, enterprise engineering, program management, content strategy and corporate communications took to LinkedIn to announce that they were laid off. The social media giant also cut employees from its units focused on privacy and integrity, according to the LinkedIn posts. Meta earlier this year became the first Big Tech company to announce a second round of mass layoffs, after showing more than 11,000 employees the door in the fall. The cuts brought the company's headcount down to where it stood as of about mid-2021, following a hiring spree that doubled its workforce since 2020. Source Reuters

Almost 200,000 Job Cuts in Tech Pushes New Grads to Wall Street: Not long ago, tech seemed to promise more than virtually any other industry — more freedom, more perks and, for the lucky ones, more money. That made the calculus for young professionals easy. Things have changed in 2023. Tech companies have cut tens of thousands of jobs and lowered compensation for the select few who get offers. That has more young people giving finance a second look. Their thinking goes something like this: with the economy in flux, go to where the jobs are — or at least where fewer have been lost. To be sure, things are looking cloudy far beyond the tech industry. Wall Street has been hit by layoffs, lower bonuses, hiring freezes and the most dramatic banking turmoil since the 2008 financial crisis. Prominent consulting firms, including McKinsey & Co. and Bain & Co., have also cut positions and delayed start dates for some new hires. Source Bloomberg

How Airlines are Trying to Prevent Another Summer Travel Nightmare: Airlines and government officials are attempting to prevent another summer of aggravation for fliers, starting with Memorial Day weekend. The coming days will be the next test of whether carriers have staffed up enough and planned adequately for the crowds the airlines and airports say they are anticipating. Daily airport volumes have already been hitting their highest levels since the start of the pandemic, and officials don’t expect that to let up. The stakes for the industry are high. The Transportation Department has said it intends to propose rules requiring airlines to compensate passengers for significant delays and canceled flights. Last summer carriers said they stretched themselves to seize on rapidly returning travel demand, only to have to cut back on flying when their operations proved too fragile to absorb disruptions. Nearly 2.5% of U.S. flights were canceled from June through August of 2022, above the rate for the same period of 2019, according to government data. Airlines and the FAA often blamed each other. Source WSJ

College Enrollment Continues to Slide: Three years after the Covid pandemic, there are more than 1 million fewer students enrolled in college. “Overall, undergraduate enrollment is still well below pre-pandemic levels, especially among degree-seeking students,” said Doug Shapiro, executive director of the National Student Clearinghouse Research Center. Only community colleges notched enrollment gains in the current semester, while enrollments in bachelor’s degree programs fell, according to the Research Center’s new report. As students look for a more direct link to the workforce, there’s a shift “toward shorter term programs,” Shapiro said. Concerns over rising costs and large student loan balances are causing more young adults to reconsider their plans after high school, a separate report by Junior Achievement and Citizens also found. More than 75% of high schoolers now say that a two-year or technical certification is enough, and only 41% believe they must have a four-year degree to get a good job. Source CNBC

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