More sanguine than the world – describes the stock market this week so far. If an assassination attempt on two leaders (Zelenski in Ukraine and MBS via a car bomb in Saudi Arabia, as some assert, but media has no coverage) not even a ripple through the S&P from these stories. (It was clearly bogus; most especially the Saudi story, planted by a vehement anti-semite on ‘X’.)I think any such MBS story assuredly bogus; planted to throw blame on Israel. Nonsense, ‘if’ that did occur, just look to Tehran; Iran has most to lose from an Israeli/Saudi ‘security alliance’ (it’s speculated that’s still discussed primarily on the down-low regardless of Gaza war). I have mentioned before the likely development that triggered Hamas Oct. 7 barbarian attack, was the prospect of a then-close deal between Jerusalem and Riyadh. Iran would have ordered Hamas to move then; hoping to derail it. Such an alliance would totally offset the Iran/Yemen/Iraqi (Iraq’s not really our friends)/Hezbollah/Hamas network.At the moment Israel has control of the Gaza-Egypt crossing; and while likely wishful thinking, what a perfect place to exfiltrate Hamas to later travel to any of their backward allies; such as Libya for-instance. Anyway there may or may not be a ‘ceasefire’ between Israel and Hamas… the one Hamas ‘claimed an acceptance of was an earlier draft that was ‘translated’ and edited ‘by’ Hamas not by Israel, and that’s the hook. Primarily the idea of ‘permanent’ ceasefire. (Click on image to enlarge)
So S&P is pressing 5200; very much above trend, but with technicals more or less neutral (again because of bifurcation). Very neutral session; holding well, but not excited. Stocks get jumpy on earnings (multi-directional shifts) but fail to resolve anything other than mostly remaining uncertain about next moves.I did view Apple’s iPad presentation today; not particularly impressed. Aside the segment being being slow; I noted that the ‘new’ iPad Pro is powerful with the M4 processor, but manages to lose the ultra-wide lens ‘and’ 5G mm (mid wave, which is the fastest of 5G’s so far). Not mentioned and no idea why. It’s insignificant for Apple’s revenues; but surprised they pulled 2 features. Plus to fully leverage ‘AI capabilities’, it ought to gave the full Mac OS; not a crippled (less functional) iPad OS. The M4 in regular Macs and MacBook Pros awaits.(By the way this iPad will be fine for airlines; actually cars central panels in at least some cases, and businesses who want that kind of portability…common use would be by Service Advisors at a car dealership; pictures and details. It’s just not exciting, and once you add Keyboard and pencil; price equals laptop.)(Click on image to enlarge)
Market X-ray: the market seems to be over-relying on the AI story, which is real and important, and the only theme that sustained the market more or less. However, just looking at Nvidia and Disney (not an Ai play) today tells you how long in the tooth some stocks are (NVDA off 15 and DIS off 11).So you have warnings about the fiscal 3rd Quarter (that’s a negative for travel, theme parks, Comcast too, and so on; maybe airlines, despite being Summer season for family travels, but this is not a typical year for consumers; and not even for ‘weather’ which may inhibit some things). Meanwhile Ai seems fully valued for hardware; with Application Software focus now, or likely should be.Bifurcation in this market remains the key differentiator, and (as I noted in the 2nd video) is basically ‘why’ the S&P has declines, but not long collapses; as the broader market (for a couple years) is just starting to get off the ground or ‘still broken’ if you want to use a term. It’s hard to crash the already crashed.That’s not pleasing for those looking for gains, except a slightly better breadth profile is indicative of money managers looking for a broadening-out, and let’s say ‘at least’ some diversification away from the so-called magnificent seven / mega-caps. That’s not to say some can’t go higher, but chasing them here is a bit nuts, even though I’ve heard managers ‘say’ they merit buying now. Let’s see him to that, while others seek-out innovative under-priced smaller stocks; and that’s not easy, and generally and worked only selectively so far this year.(Click on image to enlarge)
Not much to dwell on tonight; we’ve got and on Thursday. Not expecting surprises; LightPath is impossible to estimate if they miss again (in fact I think they previously said this would be a heavy Quarter). At least they have ‘potential’ (but with the predecessor management history, it likely takes an actual contract and then it leaps forward; nobody really follows it just now but I can see the potential ‘eventually’). Perhaps it’s the Navy Research Lab ‘exclusive’ licenses (and Lockheed relationship) that will reward patience. Do note current management is on-top of everything and has history of turning around companies (Sam Rubin transformed LPTH to more ‘defense’ postures and ‘space’, and combined one would think it works out for them over time).As to SoundHound, as noted before, I’m thinking they deliver on the Quarter; and the shares act reasonably well ahead of the report. However we’re less confident they’ve mitigated their tendency to ‘bleed’ the company for income; or capital raising. So it will help their post-Quarterly odds ‘if’ there’s no insider selling or shelf offering or any of that in the immediately wake of the report.(Click on image to enlarge)
Bottom line: this S&P is ‘hanging fire’ and helped by breadth improvement and short-covering these past couple days; as the big stocks are not moving in a cohesive way; they’re generally struggling. I’d be cautious and not chase.(Click on image to enlarge)
Prior highlights follow:’On the brink’ – of Israel’s planned attack on Rafah to stamp-out terrorists, as usual, embedded with civilians (Palestinian civilians are essentially hostages of the terror group), Hamas decided to accept a ‘ceasefire proposal’; but, as of this writing, it appears not to have been the same framework Israel agreed to. (Update on that at the end of this report; much clarification still pending.)This all matters, affects Oil prices too; and as Golda Meir once said: ‘you can’t (or should not?) negotiate peace with someone who wants to kill you’. Also if it (Hamas) wants a ceasefire, why did they launch mortals against young Israeli soldiers supervising ‘aid’ flowing through the main border crossing? The likely answer is that Hamas doesn’t want peace; they want to hold it hostage too. A picture was released of four in a group that weren’t expecting to be in combat; as these were the youngest soldiers working to facilitate ‘aid’ going into Gaza.Yes, below the young soldiers killed by the vermin Hamas; a picture of a very cleverly modified container ship the Iranians (speaking of trash regimes) have actually moved into the waters not far from me (not that I think I’m their target; hah). However that can be viewed as a threat to deter Guyana from standing their ground against Venezuela, or for-instance support for Communist Cuba. I note it has not made the media news here in the U.S., so I thought to share.Financially nothing really happened on Monday. Yields are likely not rising off these levels; and that’s encouraging; but variables remain. Probably the Fed’s going to cut around mid-Summer ‘if’ things stay about the same; while breadth improves and we finally get another prolonged firming round in smaller-caps. I also believe ‘even if’ there’s no rate cut, business can cope with this backdrop. Market X-ray: global growth is stronger than consensus expected; China and India included. The Index faded just a bit when Boeing came into the picture again, with the FAA looking into whether employees had ‘falsified records’ on the 787 Dreamliner (details are unclear for now). However we are not long on Boeing, and actually warned about it over 3 years now (737 Max situation caused no interest, and actually started the management ‘tone’ discussion of a culture change when Boeing adopted poor McDonnell Douglas ‘profit over product’ (quality) approaches. That’s not all resolved, and it weighs on what in the past was one of the premier American companies. Actually it was moving the corporate HQ to Chicago that first caused questions; as management in a great way distanced themselves from engineers and their production lines.After the Close, the Social Security Administration, looking ahead to a yearly adjustment to retiree payments, acknowledged that inflation isn’t dropping (if that’s a surprise they need to be replaced); so benefits might adjust higher a bit more than had been thought (think 3% payment increase). Well prices in the real world are higher than the CPI suggests; higher then the COL for the younger crowd; and fail to note that what retirees spend money on is higher; so that mitigates the benefit. Does this matter to the stock market? Sure; the funding issue (generally needs to be restructured to Soc. Security survives at least more than ten years) and the implication that the Fed won’t get their 2%; but of course we already know that. It will get a slower rise in Q3 most likely; as I noted COL (Cost of Living) for retiree payments in based on Q3 results.Vulnerabilities exist; but as you saw today, the broader climate (war & peace; elections; global finances) is mixed. Technically we caught this S&P swing to the upside (snatching trend victory from the jaws of defeat.. to wit rewarding the bulls and pushing bears back into hibernation).Logic say more correction is or should be forthcoming after this forecast S&P bounce but also (barring an exogenous catastrophe which can happen), this can be fairly calm and supported not just because of politics, but earnings and as you see, some of the big-caps can take a hit (like AMGN, AAPL and BA in today’s trade); yet the Index manages to hold together. Why? Better breadth.By the way I do not disagree that the bloom comes off the ‘Generative Ai’ big-cap growth stocks; as they’ve been heavily and overly played. I reiterate that’s a plus for what some of those stocks need; and that’s ‘Application Software’. It is of course a natural for SoundHound (SOUN reports on Thursday and is up a bit). But also plays were for BigBear.ai, which essentially ‘is’ just application software (and battle-management is a glorified Application of their knowledge) plus they are developing a relationship with Amazon (Web Services) and new supply-chain entities too. I might note that tiny Ondas Holdings (pending for a much-sought transportation drone contract in the US) is not exactly software only; but a combination. ONDS announced (first?) sales of their ‘Iron Drone’ (not Dome) to a large Israeli Defense contractor. No details provided yet.(Click on image to enlarge)
Meanwhile… Palantir sort of made their numbers; even caught some selling into it. We are not regularly following PLTR, but we do it’s partner in some of the Federal/military/autonomous programs, and that’s BigBear.ai .. which has stabilized and acts very much like we suggested; packing all the transforming financial engineering factors ‘in’ the last Quarter. At least we hope so. We did appreciate the relatively transparent report they issued, and emphasized their guidance for annual revenue was unchanged; which suggests they must plan to deliver ‘at least’ what they’ve already talked about.When you look at Palantir you might ponder a lesson for BearBear.ai ‘not to repeat’. That was PLTR management raising money often; prospering off of dilution borne by their shareholders, instead of focusing on ‘shareholder value’ enhancements. Buybacks or just not ‘milking the company’ achieve good will, as well as higher share prices, when companies executive in a cohesive way that isn’t smoke & mirrors to the investors. Yes BigBear can build on program operations and new Aiports/military and so on; but continue to keep common shareholders ‘in the loop’ and not merely relegated to whatever AE Industrials wants to do. AE has control (by NYSE definition); and they’ll make-out quite well if they play this reasonably; fold another company or two into BigBear.ai, if they can do that without all the shenanigans of the past, and let BBAI soar.If I had to suggest something, take a leaf from the more recent playbook an old financier who I almost repurchased my old TV station with: Henry Kravitz. His successor embraced a form of employee compensation sharing that was highlighted on CBS ’60 Minutes’ last night. Year-end bonuses tended nearly to equal annual salaries (depending on seniority and so on); so ‘C-suite’ guys and gals made more, but not exorbitant wages, while the mainstream staff got so much more (sometimes six figures) that they really felt they worked there; and it was not just working whatever was needed to take home the salary (as that can be counter-productive.. better work is faster, so used to be lower pay) so, now productivity is up. In BigBear’s case, patriotism is important given the role they have; but should not be the only motivation. Try profit-sharing and in the case of the highlight companies on CBS, the share prices moved up too. I think BBAI can double or more just on contract awards if they avoid dilution or insider selling. But if they really play it right, it can be a double-digit stock; one day might even sell for more than Palantir.. take that to your AI calculus..(Click on image to enlarge)
Bottom-line: variables prevail; extended more probably exhausts as shorts stop scrambling and especially if Oil prices zoom back up. S&P is extended.Russia’s Putin has ordered ‘tactical nuclear exercises’. Make of that what you may, but obviously Moscow wants to remain impervious to attacks ‘from’ Ukraine as they became spoiled to think they could invade Ukraine and once Ukraine acquired adequate weaponry, not respond in-kind. That is occurring at least ‘in the air’, with attacks on Russia’s ports and oil refineries increasing.Late today Israel’s IDF confirmed they are conducting targeted strikes against Hamas terror targets in ‘eastern Rafah in Southern Gaza’. It’s notable that PM Netanyahu’s office said: ‘even though Hamas proposal framework is far from Israel’s necessary requirements, Israel will send a working level delegation to the mediators’ (presumably Cairo but could be Doha, or both). Stay tuned.(Click on image to enlarge)
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Market Briefing For Wednesday, May 8
