With lawmakers bringing a debt-ceiling deal back from the brink over the holiday weekend, Wall Street looks ready to show its appreciation with a fresh 10-month high possible for the S&P 500 SPX on Tuesday.
Once we get through that, though, expect the focus to pivot quickly to fresh jobs numbers on Friday. Those gains are being led by technology once again, with AI chip king Nvidia climbing after announcing a boatload of new products.
Our call of the day slots right into this theme, as UBS names dozens of stocks “favorably positioned” for the fast-moving technology.
“Many UBS sector analysts think that generative AI (ie. AI that can create text, video etc.) has the potential to intensify competitive pressures, with 18 of 32 teams expecting this outcome, while 19 see a potential for higher revenues. All but one (Internet) see an opportunity for cost reduction,” said a team led by analyst Michael Briest.
For example, restaurants like McDonald’s MCD stand to benefit further from automated ordering and demand-based food preparation. AI will help retailers like Walmart WMT further understand what what consumers want, and those drivers of change will help to accelerate introduction of new products.
Automobiles are poised to benefit as well from cost reductions, in distribution, maintenance and spare parts, while aerospace and defense will see reduced costs on material and labor along with increased safety and security. Morgan Stanley MS, as UBS points out, is already using the technology via pilot scheme for ChatGPT to help summarize research and help produce data for financial advisors.
To be sure, lower labor costs is a theme running through most sectors, and not all sectors will see increased competitive advantages. Software is one sector where they see the possibility of increased competition via AI, as the technology builds out.
So we’ll dive right in with a list of some of the stocks they think are best placed as AI rolls out, highlighting the ones the bank has a buy rating on, unless otherwise noted. Their chart below also gives a snapshot of their views:
Aerospace: BAE Systems UK:BA
Automobiles: Mercedes-Benz XE:MBG and Tesla TSLA
Capital Goods: ABB, SE:ABB Siemens XE:SIE, Amphenol APH, Keysight KEYS, Eaton ETN, Grainger GWW, Trane TT, Emerson EMR, TE Connectivity TEL
Chemicals: Wacker XE:WCH, DuPont DD, Tokyo Okha Kogyo JP:4186
Consumer Staples: Coca-Cola KO, Heineken NL:HEIA, L’Oréal FR:OR
Exchanges: S&P Global SPGI, London Stock Exchange UK:LSEG, Hong Kong Exchanges & Clearing HK:388
Fintech & payments: Visa V, PayPal PYPL, Mastercard MA, Block SQ, Adyen NL:ADYEN
Food retail: Tesco UK:TSCO, Yum China YUMC, BGF Retail KR:282330, Sun Art HK:6808
General retail: Walmart WMT, Home Depot HD, Nike NKE, Seven & I JP:3382, Zalando XE:ZAL, Inditex ES:ITX, Levi LEVI
Insurers: Admiral UK:ADM, Ping An CN:601318
Internet: Meta Platforms META, Alphabet GOOGL, Amazon AMZN
Luxury goods: LMVH FR:MC, neutral rated Kering FR:KER and Burberry UK:BRBY
Media: Tencent HK:700, Netflix NFLX, NetEase NTES, RELX Group RELX, Universal Music Group NL:UMG
Medical Devices & Services: Guardant Health GH, Natera NTRA Johnson & Johnson JNJ and UnitedHealth UNH (both neutral rated)
Mining: Anglo American UK:AAL (neutral), Rio Tinto RIO and BHP BHP (both sell rated)
Oil & gas: Shell SHEL, Halliburton HAL and Schlumberger SLB
Real estate: Equinix EQIX, Prologis PLD, SEGRO UK:SGRO, Digital Realty DLR (neutral)
Restaurants: McDonald’s MCD, Chipotle Mexican Grill CMG, Domino’s DPZ, The Wendy’s Co. WEN (neutral)
Semiconductors: AMD AMD, Micron MU, Nvidia NVDA, Samsung KR:005930, SK Hynix KR:000660, TSMC TW:2330, VAT Group CH:VACN, Inficon CH:IFCN, Comet CH:COTN
Software: SentinelOne S, CrowdStrike CRWD, neutral-rated Microsoft MSFT, Adobe ADBE and Palo Alto Networks PANW
Steel: POSCO KR:005490, Hyundai Steel KR:004020, Nippon Steel JP:5401
Tech hardware: Dell DELL, Quanta TW:2382, Wistron TW:3231, neutral-rated Arista ANET and Pure Storage PSTG
Telecoms: Telenor NO:TEL, Bharti Airtel IN:532454, China Mobile HK:941, neutral rated Elisa FI:ELISA and Telstra AU:TLS
Transport & logistics: Deutsche Post-DHL XE:DPW, UPS UPS
Wealth & asset managers: Morgan Stanley MS, EQT EQT, Discovery ZA:DSY and neutral-rated BlackRock BLK
The markets
Stocks are solidly higher, with the Nasdaq Composite COMP up 1%. The yield on the 10-year Treasury note BX:TMUBMUSD10Y is down 8 basis points to 3.72%. Oil CL is dropping ahead of an OPEC meeting.
The Turkish lira USDTRY continues to slump to fresh lows against the dollar, currently at 20.39 lira, as President Recep Tayyip Erdogan is set for a new term. Morgan Stanley is not optimistic.
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The buzz
Several votes are ahead for the deal reached between President Joe Biden and House Speaker Kevin McCarthy to suspend the nation’s debt limit through 2025, starting with a House Rules Committee vote on Tuesday.
Nvidia NVDA stock is up 3.8% and could reach a $1 trillion market cap on Tuesday after announcing tons of new products, including a supercomputer and plans to make gaming characters come alive. The chip maker also said it’s doing a deal with WPP WPP, up 2%, to develop a content engine that uses generative AI for digital advertising.
We’ll get earnings from HP HPQ later, then Dell DELL on Thursday, which could confirm whether a pandemic-era tech bottleneck is for sure ending.
Netflix NFLX stock is up over 5% and headed for a 15-month high.
Ford F is up 3% after an upgrade to buy at Jefferies.
Newell Brands NWL is down 3% after a restructuring plan announced last week.
The data spotlight this week will fall on May jobs data, due Friday. Ahead of that, data from S&P Case-Shiller showed home prices rising across top cities. Consumer confidence is due at 10 a.m., then a speech from Richmond Fed President Thomas Barkin.
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The chart
Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets , has lifted her S&P 500 year-end target to to 4,250 from 4,100, and much of that is down to investor negativity. She says when AAII ( American Association of Individual Investors survey) net bullishness is at -10% in favor of the bears such as at the start of the year and currently, the S&P 500 tends to rally 15% over the next 12 months.
Here’s an example of that negativity, positioning in S&P 500 e-minis:
RBC US Equity Strategy, Bloomberg, CFTC, as of May 23, 2023; number of contracts
Top tickers
These were the most-searched stocks on MarketWatch as of 6 a.m.:
| Ticker | Security name |
| TSLA | Tesla |
| NVDA | Nvidia |
| MULN | Mullen Automotive |
| GME | GameStop |
| PLTR | Palantir |
| BUD | Anheuser-Busch InBev |
| AAPL | Apple |
| AMC | AMC Entertainment |
| AMZN | Amazon.com |
| AMD | Advanced Micro Devices |
Random reads
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