Stock investors are on edge as they await the latest inflation data and a debt ceiling deal in Washington. Big AI tech stocks like Nvidia, Microsoft, and Google continue to carry the market.

Wall Street economists expect the April PCE Prices Index due out this morning will show a gain in the headline rate to +4.3% from +4.2% previously. The "core" rate that strips out food and energy and which is preferred by the Federal Reserve is forecast to remain flat at +4.6%. If the actual numbers come in as expected, it would paint a slightly worse picture of inflation trends than the Consumer Price Index earlier this month that showed both total CPI and "core" CPI ticked down a notch.

The fact that inflation remains stubbornly elevated has been a key theme among Fed speakers the past couple of weeks with several officials stressing that even if the central bank pauses at its upcoming June 13-14 meeting, rate hikes could still return later in the year. This of course runs counter to the rate cuts that bulls have been anticipating at some point in the last half of 2023.

The more important reports as far as the Fed's near-term policy goes will be the May Employment Situation next Friday and the May CPI report on June 13. The jobs report next week along with the Job Openings and Labor Turnover Report on Wednesday will both be closely scrutinized for signs of weakness in the labor market, which continues to defy expectations.

With unemployment at a 50-year low, there is still a lot of upward wage pressure that many economists, including Fed officials, believe is working to keep prices buoyed. At the same time, many believe that the strong labor market will help to soften the blow if the economy does pullback or possibly slips into recession.

Keep in mind, the labor market is not actually a leading indicator of recession. Rather, unemployment typically starts to rise once the economy has already pulled back, which then leads companies to start cutting payrolls. The labor market is also generally slow to recover once the economy bounces back. Some economists and business executives have recently been discussing the potential for an "asset recession" where things like stock and home values wither, which in turn could make people feel less wealthy and therefore pull back on spending. It's actually hard to find anyone that thinks the economy will improve as the year progresses, which is a real head scratcher for the bears and even some bulls that are questioning higher earnings forecasts for Q3 and Q4, as well as what some think are too-high valuations currently.

As has been the pattern in recent days, the Dow is still trailing far behind the Nasdaq as tech continues to boost the overall index. The Dow close down by double digits yesterday while the Nasdaq gained nearly +213 points. That gain was led by Nvidia which rocketed nearly +25% higher, adding roughly +$184 billion in market value thanks to blowout earnings after the close on Wednesday. It was the third-largest one day gain for a US company on record.

Remember, stock, bond, and commodity markets will be closed this coming Monday for Memorial Day so markets today could be volatile as trading thins. That could also be compounded if the White House and Congressional Republicans fail to come through with a debt ceiling deal, which needs to still clear Congress before the deadline next Thursday, June 1. That also means next weeks economic data is crammed into just four days. That rest of that schedule includes the S&P Case-Shiller Home Price Index and Consumer Confidence on Tuesday; ADP's Employment Change and the Fed's Beige Book on Wednesday; and ISM Manufacturing, Productivity and Costs, and Construction Spending on Thursday.

Earnings will be very light with Hewlett Packard on Tuesday; Salesforce and CrowdStrike on Wednesday; and Dell, Dollar General, Hormel Foods, and luluemon on Thursday.

I think we have to be paying very close attention to this massive rally attached to AI. I've heard some seasoned and well experienced traders thinking this might be the early stages of a "bubble". I remember the early days of the bull run and all of the hype surrounding the internet. I know history doesn't repeat, but it can certainly rhyme or sound a lot alike from time to time. This might just be the start of an big run higher for anything AI related...

New Car Sales Surging in May: Auto research firm J.D. Power is projecting a huge bump in new car sales for May, which could be good news for automakers, but bad news for customers as higher prices are still in play. J.D. Power, working with its partner LMC Automotive, projects total new-vehicle sales for May, including retail and non-retail transactions to reach 1,337,700 vehicles, a +15.6% jump from a year ago. A big part of the reason why sales jumped significantly this month has to do with availability and inventory at the dealer level. The report projects retail inventory levels in May this year hit +1.3 million vehicles, a massive increase of 48% from a year ago. Source Yahoo Finance

Electricity Prices in Finland Have Turned Negative: Finland's renewable power strategy is paying off as its energy has fallen into negative prices.The news is a remarkable turnaround for a country that only a few months ago told its people to watch their energy consumption because they were cutting ties with Russian energy imports. The country faced an energy crisis after it banned energy imports from its neighbor Russia as part of the global backlash after it invaded Ukraine. But a new nuclear reactor was brought online in April this year and provided a significant new stream of power for Finland's population, around 5.5 million people. "Olkiluoto 3", the first new nuclear reactor to be opened in Europe in more than 15 years, brought the price of electricity in Finland down by 75%, from 245.98 euros per megawatt-hour in December to 60.55 euros per megawatt-hour in April, according to The National. At the same time, heavy rains and flooding have pushed Finland's hydroelectric plants into overdrive providing even more cheap electricity. Because hydropower cannot be slowed down or turned off, other producers like nuclear are looking to dial back their production to avoid losing money on energy production. Source Business Insider

What the Falling Prices of Copper Says About a Potential Recession: Copper prices have fallen more than 16% from their $9,435 per tonne January high. The metal is now trading at its lowest level since November, at around $7,900, and is just four percentage points away from officially falling into a bear market. As the third most consumed metal globally and is used across a variety of industries, copper prices have been a reliable recession indicator over the past 30 years. The metal is such a critical facet of the world’s economy that analysts often use it as a gauge of industrial and consumer demand as well as a recession indicator, giving it the nickname “Dr. Copper.” A post-COVID-lockdown economic recovery in China, the largest consumer of refined copper, was supposed to drive copper prices higher this year, but so far, the nation’s modest growth targets have failed to spur demand. Rising interest rates are contributing to weaker demand around the world. Traders are seeing that reflected in growing stockpiles of copper. Though copper’s demand has had a direct correlation to economic activity, it has not been a leading indicator of stock market performance. Over the last 40 years, there has actually been an inverse correlation between copper prices and S&P 500 returns. Perhaps the most recognizable example came between early 2011 and early 2016. Over those five years, copper fell nearly -60%, and the S&P 500 nearly doubled over the following four years. Though this overall correlation is inverse, it is anything but steady over time. Source Bloomberg & Reuters

US Apartment Landlords are Bleeding Cash: US apartment landlords who benefited from rapid rent growth during the pandemic are suddenly in the red. Higher interest rates and surging expenses are erasing their profits, even as rents are still climbing in many places. Debt payments already exceed income from multifamily buildings financed with more than $47 billion of securitized loans, according to data from Trepp. Making matters worse, property taxes are escalating swiftly and the destructive path of climate change is sending insurance costs skyward. And building values are falling, complicating owners’ efforts to sell or refinance their way out of trouble. “The problem is, nobody expected expenses to rise as much as they did,” said Jay Parsons, chief economist for RealPage, a rental-data tracker. “In particular, investors with floating-rate loans resetting at significantly higher rates could be challenged to cover debt payments.” For now, the fallout has been limited. That’s because investors often purchase rate caps that protect them from the worst effects of soaring interest costs. But those policies are likely to begin burning off at a rapid rate later this year, leaving a growing number of owners vulnerable. Source WSJ

Despite Higher Costs, Americans are Still Prioritizing Travel This Summer: Despite today’s high-inflation environment, Americans are still willing to spend to go on vacation. In Transunion’s latest 2023 Spring and Summer Travel Report, 46% of respondents said they planned to travel more this spring and summer than they did last year, with 47% planning to travel the same amount and only 8% saying they planned to travel less. The study found that most households (54%) plan to take one or two trips over the spring and summer travel season, with 45% planning to be away four to seven days and 33% planning to be away more than eight days. For families who don’t have the funds to cover their travel costs, the study found that taking on new debt and using alternative payment methods like credit cards and buy-now, pay-later platforms have made it easier to fit trips into their budgets. Of those surveyed, two-thirds of households plan to pay for their spring and summer travel using cash or their debit card, while 57% of households planned to use their credit card, even with a higher cost of borrowing thanks to federal rate hikes. Source Fortune

Supreme Court Narrows WOTUS Definition: The Supreme Court delivered a landmark decision Thursday that will significantly curtail the Environmental Protection Agency’s ability to regulate certain bodies of water. In a decision that was technically unanimous, the Court ruled in favor of an Idaho landowner in the long-running Sackett vs. EPA case. The Clean Water Act of 1972 gave EPA the authority to regulate navigable waters in the United States. At issue is what bodies of water should be considered “Waters of the United States.” Under the most recent definition of WOTUS EPA had the authority to regulate various small bodies of water, including those on private land and farms, if they had a “significant nexus” to navigable waterways. In the majority opinion authored by Justice Samuel Alito, the court held that this definition was too broad, and limited EPA’s authority to only wetlands “with a continuous surface connection” to navigable waterways. Source Feedstuffs

Ford EVs Will Use Tesla Charging Tech: Ford Motor will partner with Tesla on charging initiatives for its current and future electric vehicles in an unusual tie-up between the two rivals. Under the agreement, announced by Ford CEO Jim Farley and Tesla CEO Elon Musk, current Ford owners will be granted access to more than 12,000 Tesla Superchargers across the U.S. and Canada starting early next year. And, Ford’s next-generation of EVs — expected by mid-decade — will include Tesla’s charging plug, allowing owners of Ford vehicles to charge at Tesla Superchargers without an adapter, making Ford among the first automakers to explicitly tie into the network. Source CNBC

"Brady Bunch" House Hits the Market for $5.5 Mil: There’s perhaps no fictional family more beloved than the Bradys, and now their equally iconic Los Angeles abode that starred in the ‘70s sitcom has hit the market. Nearly 50 years after the show wrapped, the Studio City home where Carol, Mike, and their clan of six kids once lived is up for grabs. However, the residence at 11222 Dilling Street doesn’t exactly look like the original. In 2018, it was purchased by HGTV for $3.5 million and became the focus of a remodeling series that aired in 2019 dubbed A Very Brady Renovation. The original cast was in on the transformation. Altogether, the network put roughly $2 million worth of upgrades into the project, and the spread today can be yours for a cool $5.5 million. Source RobbReport

Zillow is Bullish These Housing Markets: At the height of the Pandemic Housing Boom last spring, Zillow economists remained bullish and predicted that national home prices would skyrocket another +17.8% between February 2022 and February 2023. However, as mortgage rates crossed over 6% and the housing market slipped into a slump, Zillow started slashing that aggressive home price forecast. By December, Zillow was predicting that national home prices would fall -1.1% between November 2022 and November 2023. Fast-forward to May, and Zillow is slowly drifting back into the housing bull camp as the U.S. housing market stabilizes amid the higher mortgage rate environment, and home prices in most markets are starting to rise again. Zillow’s forecast model expects U.S. home prices, as measured by the Zillow Home Value Index (ZHVI), to jump +4.8% between April 2023 and April 2024. For perspective, national home prices as tracked by ZHVI have averaged an annual appreciation rate of +5.08% since 2001. Among the nation's 400 largest housing markets (see map above), Zillow expects only 10 markets, including Houma, La. (-5%) and Santa Rosa, Calif. (-0.1%), to see a home price decline between April 2023 and April 2024. During that same 12-month span, Zillow expects 390 regional housing markets to see a home price increase. Of those, Zillow thinks 150 markets will rise by less than +4%, another 203 by +4% to 6.99%, and 37 by at least +7.00%. Source Fortune

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