A Debt Ceiling is Done, But At What Cost?

Debt Deal Done?

Biden was able to secure a few key policy wins in the pact, despite having to concede some defeats. The Republican proposal for an increase in the debt limit lasting one year, with spending restrictions in place for a decade, was eventually pushed back to after the next presidential election. Non-defence spending will stay roughly flat in the 2024 fiscal year, rising by 1% the year after. Biden's defence budget request will remain untouched.

In order to finalize the agreement with McCarthy, Biden had to take a leap of faith that the Republican speaker would be able to successfully pass the bill when it comes time for a vote in the House. The agreement included GOP priorities including caps for certain spending, a clawback of funding for new tax-enforcement agents, additional work requirements for some government safety-net programs, and expedited rules for approving construction projects.

Though Biden was able to gain some ground, progressives were unhappy with the new restrictions on eligibility for social safety-net programs, mainly food aid. Even with Biden's limitation of changes and a carve-out for homeless people and veterans, these groups still saw it as a harmful concession.

Details are still emerging, but any deal would likely be a positive for markets.

Week in Review

Friday was a big day for the markets, with the S&P 500 closing above 4,200 for the first time since August 19, 2022. After 15 consecutive days of trading between 4,100 and 4,200, The S&P 500 gained 1.3% breaking through a key technical level for the first time since the beginning of August. The Nasdaq rose 2.2%, while the Dow Jones Industrial Average saw gains of 1%, despite its lack of tech stocks and AI exposure.

The S&P 500 is now up 10.3% year to date, although it is still off more than 10% of its peak it reached in January of 2022.

The latest government report on personal-consumption expenditures, The Fed’s preferred inflation measure, released on Friday indicated that inflation remains a concern, as the PCE price index rose 0.4% in April, accelerating from 0.3% from February and March. Year-on-year, the index was up 4.4%.

Investors may have one less issue to worry about, wondering whether or not the nation is creditworthy. Lower government spending amid, still high, inflation may not be terrible for the economy.

Earning & Economic Calendar

The coming shortened week brings a flurry of news from the financial world, with earnings reports from major companies and labor data from the Bureau of Labor Statistics.

On Tuesday, Hewlett Packard Enterprise and HP Inc. will share their results. Wednesday brings more earnings news from Advance Auto Parts, Chewy, and Salesforce, while Broadcom, Dell Technologies, Dollar General, and Lululemon Athletica report on Thursday.

Also on Wednesday, the BLS will publish its job openings and labor turnover survey (JOLTS) for April. Economists anticipate a slight decline to 9.44 million job openings.

The week culminates with the closely-watched jobs report on Friday. Here, the BLS is expected to report a gain of 200,000 nonfarm payrolls in May and a slight uptick in the unemployment rate to 3.5%.

Other notable economic data out next week include the Conference Board's consumer confidence index and the Institute for Supply Management's manufacturing purchasing managers' index, both for May.

There’s An AI War, and Nvidia is the Only Arms Dealer

Nvidia (NVDA) enjoyed a 26% surge in its stock price on Thursday, driven by the explosive growth in generative AI technologies. The impressive leap comes after the chip maker reported better-than-expected first-quarter earnings Wednesday, and showed a dramatic increase in data center revenue in the coming quarter.

Nvidia has been a leader in AI chips for many years, and according to Raymond James managing director Srini Pajjuri, they’re not losing that title any time soon. “Nvidia has the chips, systems, software, it’s a full stack solutions company," he said. "In the short term, Nvidia is the only game in town.”

It’s easy to see why Nvidia is the go-to name in AI technology. With their years of investment in this field and their comprehensive solutions, they remain the number one choice for those looking for an AI partner. No other chipmaker offers full-stack solution remotely matching Nvidia’s capabilities.

Recently, AI has become the technology gold rush. Companies from all industries are joining the race to integrate AI into their products, with a major player being Nvidia (NVDA). Their hardware solutions currently lead the market, selling chipsets for up to $25,000 a piece.

But, Nvidia’s AI gold rush won’t last forever. Long-time Nvidia rival AMD (AMD) could eventually begin to capture market share. In addition, companies designing their own custom chips can bring down costs significantly. Although, there is currently no competition on the market today.

The current AI explosion began when OpenAI released their generative AI chatbot ChatGPT last year. Microsoft and Google have since jumped on board, introducing search engines and bots powered by generative AI.

It remains to be seen which companies will be the most successful in the AI race. But for now, Nvidia is reigning supreme.

The problem with investing directly investing in Artificial Intelligence, outside of Nvidia, is that there are few companies with direct exposure to this space. There are more companies touting its adoption than actually benefiting from it, over 100 companies mentioned AI in their conference calls this past quarter. While this is much different than cryptocurrency due to its immediate use cases and adoption, there were plenty of companies who name dropped to ride the coattails of a trend. Our research partners at Empirical have identified a small number of equities with exposure to this space.?

Chart of the Week: The US dollar continues to climb. Stronger than expected inflation data pushed up rate expectations and the dollar compared to other currencies. We believe the dollar is close to peaking.

Disclaimer: The author of this blog is a financial advisor but may not be the right advisor for you. In fact, the author may not even be the right advisor for themselves. Please consult a qualified professional before making any financial decisions based on the content of this blog. And remember, just because the author has a fan