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MAY 6, 2024

SURPRISING INFLOW SURGE

Shares of the Grayscale Bitcoin Trust have increased by 5% following its first day of inflows since January. Let’s remember that the trust, which tracks the price of Bitcoin, had been experiencing significant outflows totaling $17.46 billion since its transition to an easily tradable ETF earlier this year, and some of these withdrawals were associated with bankruptcies in the crypto industry. However, there was a switch in momentum last Friday as Grayscale reported inflows of $63 million, with $18.08 billion in assets under management (AUM). Nevertheless, despite the rise experienced by Grayscale, Bitcoin is on a downward momentum as of 8:00 AM CST. Moreover, Grayscale plans to create a lower-fee Bitcoin Mini Trust, and it is awaiting approval from the Securities and Exchange Commission (SEC), but it is still unknown the fees it would involve.

POSITIVE RESPONSE YET UNCERTAIN

Bond traders reacted positively to the latest U.S. labor market report, which  showed slower job and wage growth, and  resulted in a surge in U.S. Treasury yields. This news led to increased expectations of potential interest rate cuts by the Federal Reserve. However, it is worth noting that concerns linger about the persistence of inflation, which may limit the central bank’s actions. Thus, the situation in regards of rate cuts happening this year is still uncertain. In addition, due to these inflation and government spending concerns, there is uncertainty about the direction of long-term bond yields, and as a result, the two-year yield saw a significant decline. Moreover, investors are closely monitoring the upcoming $67 billion Treasury auction to gauge investor demand for longer-dated debt, and determine if it is outperformed by shorter-term securities.

SHIFT TO DEFENSIVE SECTORS

Uncertainty in key U.S. economic indicators has caused a shift in investor focus towards defensive sectors, such as consumer staples, according to Morgan Stanley strategists. As April inflation data looms, recent employment figures indicating a cooling labor market have raised concerns about the economic landscape, and the potential scenarios of a soft landing or a no landing, where growth remains robust despite high interest rates, add further complexity to the situation. The need for an adaptable investment strategy becomes evident, as market conditions fluctuate and stock leadership rotates amid differing potential outcomes. Thus, investors may consider adding exposure to defensive sectors like utilities and staples as a precaution against further business activity slowdowns. Nonetheless, it is worth noting that despite uncertainties, the S&P 500 has shown optimism due to the latest strong corporate earnings, which have pushed the index above expectations.

RECORD-BREAKING QUARTER

Based on its latest earnings Berkshire Hathaway had a great first quarter, with a big increase in operating earnings and a record amount of cash. The company’s operating profit soared by 39%, driven by impressive gains in insurance underwriting and investment income. The insurance sector saw a substantial 185% surge in earnings, with Geico’s profits almost tripling year-over-year. Additionally, Berkshire’s railroad and energy divisions saw strong performances, further contributing to the company’s success. Furthermore, despite net earnings decreasing by 64% to $12.7 billion due to stock market fluctuations, the company’s cash hoard hit an all-time high of nearly $189 billion, showcasing Buffett’s challenge in finding suitable investment opportunities. Moreover, Berkshire has trimmed its Apple stake and increased its stock buybacks.

KEY EVENTS HAPPENING THIS WEEK

Monday: Speeches from Richmond Fed President Tom Barkin and New York Fed President William, and earnings reports from Palantir Technologies, Lucid Group, and Rocket Lab (after market closes).

Tuesday: Consumer credit report from March, speech from Minneapolis Fed President Kashkari, and earnings reports from Walt Disney Co., Spirit AeroSystems, Nikola (before market opens), Reddit, Astera Labs, Lyft, Virgin Galactic, and Rivian Automotive (after market closes).

Wednesday: Wholesale inventories report for March, speeches from Fed Vice Chair Philip Jefferson, Boston Fed President Susan Collins and Fed Gov. Cook, and earnings reports from Uber Technologies, Shopify (before market opens), Airbnb, Instacart (Maplebear), Bumble, Robinhood, Beyond Meat, TKO Group, and AMC Entertainment (after marketcloses).

Thursday: Initial jobless claims for week ending on May 4, speech from San Francisco Fed President Mary Daly, and earnings reports from Warner Bros. Discovery, Tapestry, Krispy Kreme, Roblox (before market opens) and Sweetgreen (after market closes).

Friday: Monthly U.S. federal budget report for April, preliminary consumer sentiment report for May, and speeches from Fed Governor Michelle Bowman, Chicago Fed President Austan Goolsbee, and Fed Vice Chair for Supervision Michael Barr.

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