Sam Altman Was Right

Good Afternoon. Markets gave back some of the gains this week, with all major indices down ~2.5%. The macro data was a relatively quiet week, with only three key releases. Again, the hard macro data was strong and still does not reflect any concerns seen in the survey-based data.

Below are the key things to note from this week:

Potential Trade Deals in Two Weeks:
US Treasury Secretary Scott Bassent mentioned in his Bloomberg interview that he expects multiple trade deals to be announced in the next two weeks. This is a very positive catalyst for the markets. If some deals are announced, especially with one or two major trading partners, it will help markets propel to new highs.

Weak 20-year Japan and US Debt Auctions:

This week, weak demand for Japanese and US debt auctions raised concerns about rising bond yields in the future. Some commentators mentioned that the bond markets are trying to enforce fiscal discipline.

• Japan's 20-year bond auction drew weak demand. The average yield jumped to 2.555%—the highest since 2000—while the tail spread was the widest since the 1980s.

• In the US, the 20-year bond auction was weak, and the yield rose to its highest since the November 2023 post-auction.

Expected SLR Relief:

The weak bond auctions are expected to expedite the Supplemental Leverage Ratio relief for the US treasuries. In the same Bloomberg interview, Scott Bassent talked about SLR relief to come in the coming months, where banks will not be asked to hold to capital against the treasuries they hold, and it could help bring down the yields by tens of basis points based on the Covid experience when this relief was last provided.

US Going Big On Digital Assets:

Constant positive news flow on crypto has continued from the US since the Trump administration took office.

• The GENIUS Act cleared a key procedural vote in the Senate. This act is proposed to regulate the $200 billion rapidly growing stablecoin market.

• Scott Bassent mentioned in his Bloomberg interview that the US is going big on digital assets.

• In other news, US banks are exploring issuing a joint stablecoin on the Solana network. This proves that Sam Altman was right to back Solana from the beginning. If he had controlled his greed, he would be a prominent figure in the crypto world today. Trump's memecoins are also on the Solana network, and Solana is threatening Ethereum’s position as a top smart contract network.
  

Retail Earnings:
Multiple retailers reported earnings this week. The sentiment differed depending on who depended more on China for its inventory. For example, Home Depot mentioned that it has diversified its sourcing and will not increase prices, whereas Ross Stores withdrew guidance as it sources more than 50% of its goods from China. The China deal is very important in alleviating these pressures in the coming months, and Scott Bassent confirmed this week that the in-person trade talks with China will continue soon.

Next Week: The three most important things for the next week to keep track of are:

Nvidia Results

Nvidia reports earnings next week, and I expect them to beat earnings as usual, but the gross margin and the guidance will matter the most. The stock is trading well below the analyst’s target, and it's been a while since it touched an all-time high. NVIDIA's gross margin has declined over the last few quarters. It will be essential to see if the gross margin returns to the mid-70s.

Below is Nvidia's recent gross margin trend:

• Q1 2025: 78.4%

• Q2 2025: 75.1%

• Q3 2025: 74.6%

• Q4 2025: 73%

• Q1 2026 (est.): 70.6% (+/- 50 basis points)

PCE Inflation
Fed’s official measure of inflation, the PCE, is expected on Friday. The CPI data and the Cleveland Fed projections show that the YoY PCE should be closer to ~2.2%, much closer to the Fed average target of 2%. Any upward reading will be perceived negatively.

FOMC Minutes
FOMC minutes are expected mid-next week. They will provide insights into the thinking of FOMC members and commentary on market and economic conditions. I will provide the summary in next week’s newsletter. The market will be keen to gauge any indications of rate cuts.
 

For the week:

• The S&P 500 is down 2.61%, the Nasdaq is down 2.47%, and the Dow 30 is down 2.47%.

  

  Source: Barchart

CNN's Fear & Greed Index now stands at 64 (Greed) out of 100, down 4 points from last week. Details here

The top five trending stocks on Reddit are enCore Energy, SPY, UnitedHealthcare, Nvidia, and Tesla. Read More

Here is a summary of this week’s key economic releases:

Target Rate Probabilities for June 18th FOMC Meeting:

CME FedWatch

Amazon CEO on Tariffs: Amazon CEO Andy Jassy said at the virtual shareholder meeting that the company hasn’t seen any signs of weakening demand or notable price increases despite Trump’s tariffs. “We have not seen any attenuation of demand at this point,” he noted. Read

Stablecoin Regulation Progresses: The GENIUS Act to regulate stablecoins cleared a key Senate hurdle, with 15 Democrats helping it pass the cloture threshold and avoid a filibuster. Read

Tepid Demand for Treasury Auction: The US Treasury's $16bn 20-year bond auction drew weak demand, as rising debt concerns mount amid ongoing tax and spending debates in Congress. Read

Oracle Chip Buying: Oracle plans to spend ~$40B on Nvidia’s top-tier chips for OpenAI’s new data center in Abilene, Texas, part of the U.S. Stargate Project aimed at strengthening America’s AI edge amid rising global competition. Read

Standing Repo Facility: NY Fed’s Roberto Perli urged more use of the Standing Repo Facility, calling it vital for effective policy implementation and market stability. He stressed that counterparties should use it when economically sensible. Read

Banks Mull Joint Stablecoin: Top U.S. banks, including JPM, BofA, Citi, and Wells, are in talks to launch a stablecoin to counter crypto competition jointly. Discussions involve Zelle’s operator and the Clearing House. Read

Potential Deal: Salesforce is back in talks to acquire Informatica, after last year's $10B deal attempt fell through. A transaction could be finalized next week, though talks remain uncertain and rivals may still emerge. Read

Home Depot Mixed: Home-improvement retailer missed earnings for the first time in five years. Investors backed its steady guidance and decision to hold prices despite rising tariffs. Read

Source: Bloomberg

Palo Alto Beat: Palo Alto Networks reported higher revenue in Q3, but profit dipped to $262M (37c/share) from $279M (39c) last year due to rising expenses. Read

Lowe’s Mixed: Lowe’s Q1 comparable sales fell 1.7% but beat expectations, signaling resilient home spending despite weak sentiment. It now sees full-year comps flat to up 1%. Read

Medtronic Beat: Medtronic’s Q4 revenue beat estimates at $8.9B, up ~4% YoY, led by its Cardiovascular unit, which posted $3.34B vs. $3.28B consensus, growing ~7% YoY per Bloomberg data. Read

TJX Beat: TJX maintained its annual outlook but flagged U.S. tariff headwinds. Strong demand for off-price goods helped the TJ Maxx parent beat quarterly sales estimates. Read

Snowflake Beat: Snowflake projected Q2 product revenue of up to $1.04B, topping estimates, as momentum builds from last year’s product launches. Read

ADI Beat: Analog Devices beat Q3 revenue estimates but guided lower for automotive, blaming tariff-driven pull-ins. Shares fell 5% as near-term chip demand remains tariff-distorted. Read

Workday Beat: Workday posted higher Q1 revenue and reaffirmed full-year guidance as subscription sales rose. Profit fell to $68M (25c/share) from $107M (40c) a year ago, hit by $166M in restructuring costs. Read

Intuit Beat: Intuit beat expectations in its key tax season quarter, posting Q3 adjusted EPS of $11.65 on revenue of $7.75bn vs. estimates of $10.93 and $7.57bn. Read