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Kuby’s Commentary

Questionable Intelligence

May 30, 2023

Closing In

Artificial intelligence and questionable intelligence dictated the action in the financial markets. Early in the week stocks drifted lower as debt ceiling talks progressed without resolution and the Fed minutes showed uncertainty about future monetary policy actions (both qualifying as questionable intelligence). Nvidia’s fantastic earnings Wednesday evening lifted everything AI related on Thursday, while most equities continued to languish outside of the tech sector. Back to questionable intelligence, stocks surged on Friday following reports that the White House and the GOP were closing in on an agreement to avoid the self-inflicted financial catastrophe of a government debt default. That agreement was struck between Biden and McCarthy over the weekend.

Despite the rally on Friday, it was another week of narrow leadership in the stock market, with the Nasdaq Composite gaining 2.5%, the S&P 500 inching up 0.3%, and the Russell 2000 essentially breaking even. In fact, only the technology sector finished in the green for the week. The year-to-date performance dispersion is even more dramatic, with the Nasdaq up 24%, the S&P up 9.5% (with all that gain coming from 6 Nasdaq stocks), and the Russell up 1.3%. As a result, a gaping valuation disparity has developed, with the popular mega caps trading at elevated P/E multiples of 30x plus, while most of the rest of stocks are trading at more modest multiples under 15x. History suggests that equity investors would benefit from shopping in the bargain areas of the market given that dynamic.

The yield on the 10-year Treasury continued its recent advance, rising 12 basis points to 3.81%, and the 2-year rate bumped up to 4.65%, resulting in an increase in the curve inversion to 84 basis points. It has now been inverted for almost 11 months. Perhaps we are living in a version of a Samuel Beckett play “Waiting for Recession”. The economic data on Friday which showed a surprise jump in consumer spending could be indicative that recession, like Godot, simply isn’t going to appear on stage.

The dollar strengthened almost 1%, as did crude oil, while gold slipped nearly 2% lower.

On the Chicago sports scene, the Sky with essentially a completely new roster is off to a terrific start, despite suffering several early season injuries.

Debt Default Drama

Questionable intelligence surfaced to kick off the trading action, as the compromise debt ceiling bill faced opposition by both Republicans and Democrats, creating additional debt default drama as the sand (money) continues to flow out of the hour glass (treasury coffers).

Jobs data will be in focus during the holiday shortened trading week, with the Job Openings Labor Turnover Survey (JOLTS) on Wednesday expected to show that the still tight labor market is loosening. Friday’s nonfarm payrolls release from the BLS is forecasted to indicate a gain of 200,000 jobs with wages 4.3% higher than the year earlier period. Any surprises from the jobs report could influence the Fed’s near-term policy decisions. We believe another rate hike would represent less than questionable intelligence.

Stocks on the Move

-21.1% Titan Machinery Inc (TITN) reported its first quarter FY24 results last week with EPS of $1.19 beating expectations of $1.02. Revenue, on the other hand, came in slightly lower than expected with $569.6M for the quarter versus consensus $589.2M. Management indicated some choppiness between quarters this year due to equipment demand-supply mismatch.

-10.6% Shoe Carnival Inc (SCVL) fell last week after missing its Q1 earnings targets and lowering the full-year outlook due to soft consumer trends, higher inventories, and an intense promotional environment.

Tech stocks…

+24.6% NVIDIA Corp (NVDA) surged last week after its first quarter earnings and guidance widely surpassed estimates. For the period ending April 30, NVDA earned $1.09 per share and generated $7.19B in revenue, versus estimates of $0.92 per share and $6.5B. Driven by interest in artificial intelligence, NVDA is guiding for an $11B second quarter versus a $7B analyst consensus number.

+13.7% Axcelis Technologies (ACLS) was up on news of NVDA’s earnings.

+20.0% Advanced Micro Devices Inc (AMD) was up on news of NVDA’s earnings.

Companies with no news…

-11.9% Inc (FLWS)
-11.3% LSI Industries Inc (LYTS)

The stocks mentioned above may be holdings in our mutual funds. For more information, please visit

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