Market Musings: Unraveling the Threads from Fiscal Negotiations to Tech Sector Resurgence

May 26, 2023

4 min read

Federal Budget Update:

The White House and GOP nearing a two-year federal budget agreement.
Proposed deal includes a 3% increase in defense spending next year.
Renewable energy initiatives and fossil fuel projects would receive more support and expedited permitting.
A $10 billion reduction from IRS’s recent budget enhancement of $80 billion proposed.
No resolution yet on spending cap disagreement.
Treasury’s cash reserve dwindled to December 2021 low of $49.5 billion this Wednesday.

Economic Overview:

Q1 GDP figures reveal a 1.3% expansion, exceeding initial forecasts of 1.1%.
Surge in consumer spending primarily drove the uptick, with a downturn in inventory investment.
Adjusted GDP price index and core PCE prices read 4.2% and 5.0%, respectively.

Employment Data Revision:

Recent data modifications show ~171,000 fewer initial jobless claims reported over the last three months than anticipated.
Upcoming Friday jobs report may reveal stronger labor market, possibly pressuring the Fed to hike interest rates.

Wall Street Outlook:

Savita Subramanian of BofA raised her S&P 500 index price target from 4,000 to 4,300, suggesting an upper limit of 4,600.
Andrew Slimmon of Morgan Stanley concedes S&P could surpass his 4,200 aim and reach approximately 4,600 by year’s end.

JPMorgan Developments:

JPMorgan to reduce ~15% of the workforce (~1,000 employees) of its recently acquired entity, First Republic.
Bank developing AI-driven investment advisory product, IndexGPT, using generative pre-trained transformer (GPT) models.
IndexGPT will select securities “customized to customer needs”.

Mutual Funds & Hedge Funds:

Mutual funds started Q1 underweight on many stocks that led this year’s surge.
Cash being channeled into Big Tech as long-only funds approach their cash limits.
Hedge funds raised allocations to tech stocks from 9.7% to 15.5% of overall single-stock net exposure since the year’s start.

OPEC+ Meeting:

OPEC+ to discuss oil production quantities next week.
Saudia Arabia contemplating production cuts, while Russia believes no immediate modifications required.
Concerns about a potent USD and fears of sluggish demand growth, primarily from China, pose challenges for oil pricing.

Market Highlights:

Marvell Technology ($MRVL) exceeded expectations with $0.31 EPS (vs. $0.29 expected) and $1.32 billion in sales (vs. $1.3B expected).
Marvell’s stock jumped +16% in after-hours trading as it projected AI revenue to at least double this year and again in FY2024.
Costco ($COST) fell short of expectations with $2.93 EPS (vs. $3.30 expected) and $53.65 billion in sales (vs. $54.66 billion expected).
Despite a 4.8% global (3.5% in the US) rise in foot traffic, Costco’s average ticket fell 4.2% (3.5% in the US), and e-commerce sales dropped 10% YoY.

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