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During the debt ceiling crisis of 2011 the S&P 500 dropped 18%. JPMorgan is saying this time might be worse. They are telling their big clients to short small caps and go long volatility as they think it will spike.

This time it’s different?

❌ Another day has passed without a resolution to the debt ceiling issue.

• With the X-date just about 1 week away, Democrats and Republicans remain far apart and have no further meetings planned.

• In the meantime, a group of Democrats says they’re willing to “support” Kevin McCarthy if he reaches a bipartisan agreement that provokes his fellow Republicans to oust him from his post as House Speaker.

• The political circus continues.

🏢 Business activity in the US rose at the fastest pace since April 2022, according to S&P Global’s surveys of purchasing managers.

• That growth, however, is split.

• Manufacturing PMI fell more than expected and back into contraction as companies struggled with inventory issues and softer demand.

• Services activity, on the other hand, grew at its fastest rate in over a year led by the biggest jump in new orders since April 2022.

🏘️ Sales of new homes in the US jumped unexpectedly in April, rising by 4.1%–the most since March 2022.

• Meanwhile, supply is still waning: the number of new homes for sale was at its lowest in a year.

• The median sales price of new homes fell 8.2% YoY to $420,800–the biggest drop since April 2020.

• Prices are now down over 15% from their 2022 peak.

📱 Apple and Broadcom have struck a multiyear, multibillion-dollar deal.

• The latter will provide the former with 5G components and parts for its devices.

• The partnership is part of Apple’s commitment to diversify its supply chain (i.e., reduce its dependence on China) and source more chips from the US.

• For Broadcom, the deal strengthens its relationship with its biggest customer which accounts for some 20% of sales.

🤖 Microsoft is ramping up the competition with Google.

• ChatGPT users will soon be able to access post-2021 (this is as far as ChatGPT training knowledge goes) information through the chatbot after its integration with the Bing search engine.

• The company has also launched new tools that allow developers to use generative AI in their business software.

• The tools—or “plug-ins”—connect Microsoft’s generative AI services, 365 Copilot, to integrate different software applications run by businesses.

📉 JPMorgan’s top strategist, Marko Kolanovic, has a message for investors: dump equities, add gold, and hold cash.

• His team sees limited upside to stocks amid ongoing debt ceiling talks, a potential recession, tightening liquidity, and a Fed funds rate that could very well stay higher for longer than markets expect.

• Meanwhile, put option open interest across major equity ETFs is at its highest level since August 2011, according to Goldman Sachs.

• Astute readers will note that this 2011 period coincides with the last major debt ceiling crisis.

🛢️ Yesterday we noted the warning to short-sellers from Saudi’s Energy Minister Prince Abdulaziz.

• Those comments helped offset growing debt ceiling concerns to lift oil prices.

• Also boosting prices were data showing the biggest drop in US crude inventories since March.

• Meanwhile, gas inventories fell for the third straight week just as the US heads into peak summer travel season.

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📊 Yesterday’s highlights:

 Lowe’s: $3.67 EPS (vs. $3.44 expected) ✅, $22.35 billion in sales (vs. $21.6B expected) ✅.

• Net income fell 3% YoY on a 6% annual drop in revenue.

• The retailer lowered earnings and revenue guidance for the full year as it expects “a pullback in discretionary consumer spending over the near term”.

 Dick’s Sporting Goods: $3.40 EPS (vs. $3.13 expected) ✅, $2.84 billion in sales (vs. $2.79B expected) ✅.

• Comparable sales fell just short of expectations while inventories increased.

• The company reiterated its full-year outlook for earnings and same-store sales.

👀 What we’re watching today:

• Nvidia

• Analog Devices

• Bank of Nova Scotia

• Snowflake

• Slunk

• UiPath

• Xpeng

• Futu Holdings

• E.L.F. Beauty

• Dycom Industries

• Kohl’s

Full earnings here.

• Buybacks: Last year’s record pace of share repurchases continues with US companies announcing plans to buy back more than $600 billion in shares in 2023.

• AI ads: Google is introducing new AI tools that will allow advertisers to create ads using generative AI.

• Self-driving: Uber is partnering with Alphabet’s Waymo to offer driverless rides.

• Succession: Executives at Disney are scrambling to find a successor for Bob Iger.

• Password crackdown: Netflix is finally going after password-sharing users with additional charges.

• Twitter bid: Florida Governor Ron DeSantis will announce his bid for president later today on Twitter Spaces alongside Elon Musk.

• Chip wars: Nvidia’s CEO says the tech industry is at risk of “enormous damage” over escalating tensions between the US and China.

• UK inflation: Inflation in the UK in April fell below 10% for the first time since August despite rising 1.2% MoM.

• BTC HODL: A record 68% of Bitcoin has been held for at least 1 year.

• Tether comeback: At $83.5 billion, the total supply of USDT is closing in on its all-time high of $84.1 billion.

• Hacks decline: The number of crypto-related hacks fell 70% YoY in Q1.

• COIN vs. SEC: In a recent filing, Coinbase accused the regulator of “talking out of both sides of its mouth”.

• COIN WaaS: Coinbase’s web3 “Wallet as a Service” solution has launched on Ethereum’s mainnet.

Check out GritCRYPTO for more.

• GIF loss: After paying $315 million for Giphy in 2020, Meta is now selling the company to Shutterstock for just $53 million.

• Less harmful AI: A safety-focused AI chatbot startup, Anthropic, has raised $450 million.

• Liquidation: Virgin Orbit is selling off assets as part of its liquidation plan after filing for Chapter 11 bankruptcy.

• Hotel M&A: Shares of Wyndham Hotels jumped yesterday after reports that Choice Hotels was exploring an acquisition.

• Pre-IPO moves: Panera has selected a new CEO ahead of its plans to IPO as soon as this year.

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