No Fresh Drama
The equity markets moved higher, with the usual suspects (Apple and its fellow tech giants) continuing to lead the charge, but with the rally broadening out as other stocks joined the party. The Nasdaq Composite gained 3%, the S&P 500 rose 1.6%, and the Russell 2000 jumped 1.9%, while advancing issues outnumbered declining ones by a 3-2 margin. For most of the week the constructive tone of the debt ceiling negotiations was the lead story, with the bullish tone aided by the absence of any fresh drama with the regional banks. Trading sentiment was dampened on Friday after the White House and congressional Republicans reached an impasse in negotiations on the debt ceiling, and talks were broken. Consumer sector shares were under specific pressure on Friday following poor quarterly results from Foot Locker, which followed a downbeat forecast from Home Depot earlier in the week. Regional bank shares were also under some pressure on Friday after Treasury Secretary Janet Yellen said more bank mergers might be needed.
The yield on the 10-year Treasury jumped 23 basis points to reach its highest level since early March at 3.69%. The 2-year rate advanced even more finishing at 4.27%, leading to a deepening of the yield curve inversion to -58 basis points. The highest rates remain at the very short end, with yields over 5% available across all the 2023 maturities. The dollar and oil firmed modestly, while gold lost approximately 1.5%.
In summary, not much was resolved during the week, but the market embraced the increased likelihood that the Fed is done raising rates in a softening economy, and that there was a decreased risk of a government default.
On the Chicago sports scene, there is a decreased likelihood that either the Cubs or White Sox will have a winning season, unless that dynamic changes we will suspend commentary.
Blackhawks fans were elated last Monday when NHL Deputy Commissioner Bill Daly revealed that Chicago had secured the first pick in the 2023 draft, with which they will select the 17-year-old Canadian sensation Connor Bedard, otherwise known as “The Future of Hockey”. Can you say Stanley Cup?
Shall Not Be Questioned
The U.S. debt ceiling showdown drama will remain in focus with the government coffers running on empty by early June. Talks resumed Monday, and hopefully negotiations will result in a resolution without President Biden needing to take executive action. President Biden has dismissed (for now) the idea of invoking the 14th amendment, which states, “the validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.” All things considered we think the odds of a government default remain extremely unlikely. We also believe that once this current negotiation is concluded it would make sense to address the wisdom, as well as constitutionality of the debt ceiling. There are only two countries in the world that have an absolute debt ceiling, the U.S. and Denmark. Whereas something may be rotten in Denmark, the U.S. does not need this constraint that has become a political hot potato.
Monetary policy will be a sideshow, with various Federal Reserve board members on the speech circuit and the minutes of the last FOMC meeting being released.
The economic calendar is light, with the Bureau of Economic Analysis report on personal income and expenditures for April on Friday probably the most significant release. Economists expect a 0.4% gain on both measures, and for the core personal-consumption-expenditures price index to show a rise of 4.4%, down from 4.6% the previous month.
Stocks on the Move
Stocks with news…
-12.7% Ducommon Inc (DCO) Last week, DCO launched an underwritten public offering of 2 million shares priced at $40.00 per share for net proceeds of $74.4M. The proceeds will be used to pay down debt from the recent acquisition of BLR Aerospace LLC.
+19.4% Madison Square Garden Entertainment Corp (MSGE) Last week, MSGE reported FQ3 earnings per share of $0.42 and revenue of $201.2M which beat estimates by $0.21 and $9.2M, respectively. Additionally, it was reported that MSGE was nearing a deal to sell the former Hulu Theater at Penn Station for $1 billion.
-12.0% Bowlero Corp (BOWL) After surging Thursday afternoon, BOWL ended the week down despite posting solid FQ3 earnings where revenue grew 22% to a record $316M. EBITDA margin expansion should continue as the Company continues to implement QMS, its proprietary financial performance technology. Additionally, BOWL is growing its number of locations with six new builds on the way, two of which are currently under construction.
+10.3% NVIDIA Corp (NVDA) Last week, NVDA announced its GeForce RTX 4060 family of GPUs which includes a low-cost card starting at $299.
+11.1% Advanced Micro Devices Inc (AMD) Last week, AMD was up with the rest of the semiconductor stocks on news of NVDA’s new low-cost chip.
Stocks with no news…
+15.5% Evolution Petroleum Corp (EPM)
+13.8% Great Lakes Dredge and Dock Corp (GLDD)
+13.6% Superior Group of Companies Inc (SGC)
+11.0% United States Lime & Minerals Inc (USLM)
+10.8% Cracker Barrel Old Country Store Inc (CBRL)
+16.0% Axcelis Technologies (ACLS)
+11.5% ProPetro Holding Corp (PUMP)
+12.5% Bank of Hawaii Corp (BOH)
+10.7% OceanFirst Financial Corp (OCFC)
+10.6% First BanCorp (FBP)
The stocks mentioned above may be holdings in our mutual funds. For more information, please visit www.nsinvestfunds.com.