Trading Day: IPO, IPO, it’s off to work we go

By Jamie McGeever

ORLANDO, Florida, May 21 (Reuters) – U.S. stocks ended a choppy session on Thursday in the green, lifted by optimism that a U.S.-Iran peace deal is close at hand, while investors also pored over Nvidia’s earnings report and awaited potential bumper IPOs from SpaceX and OpenAI.

In my column today, I look at the overlaps between extreme concentration in U.S. stock ownership, Wall Street’s AI boom, wealth effects, and workers’ record low share of national output. Can stock market gains soothe workers’ pains?

If you have more time to read, here are a few articles I recommend to help you make sense of what happened in markets today.

1. SpaceX IPO bets $2 trillion on Musk’s ambitious rockets-to-AI vision

2. Major takeaways from Magnificent Seven’s AI-fueled earnings

3. ‘True cost of living’ could be Trump’s biggest headache: Mike Dolan

4. Iran war drags European economy down, pushes prices up

5. China oil import cut, higher U.S. exports wrongfoot market bulls

Today’s Key Market Moves

• STOCKS: South Korea +9%, Japan’s Nikkei +3%, China -2%. Europe and UK flat. Wall Street up, Dow +0.6%, S&P 500 +0.2%.

• SECTORS/SHARES: Japan’s SoftBank +20%, Samsung +9%. Ralph Lauren +14%, IBM +12%; Intuit -20%, Walmart -7%.

• FX: Dollar, G10 FX mostly flat. In EM, India’s rupee +0.5%, Korea’s won -0.5%.

• BONDS: Long-dated U.S. yields dip, short-end yields blip. Curve flattens. 10-year TIPS auction mixed – okay bid/cover, but tail of nearly 2 bps.

• COMMODITIES/METALS: Oil -2%, gold flat. NYMEX gasoline futures -8% this week, eyeing biggest fall since September. U.S. wheat futures -2%, easing from Tuesday’s 2-year high.

Today’s Talking Points

* ChatIPO

SpaceX and OpenAI are preparing to go public, the latest chapter in the stunning trillion-dollar tech/AI story that has driven Wall Street and global stocks to new highs this year. At projected IPO prices, they may soon be valued at just under $2 trillion and $1 trillion, respectively.

They’re striking while the AI iron is hot. But will investors end up getting burned? It’s a lot of equity supply to hit the market and OpenAI – or “ChatIPO”, as Deutsche dubbed the creator of ChatGPT – is not expected to make a profit for years. How this plays out could set the market tone for the rest of the year.

* Keepin’ it real #1

Real yields on Treasury Inflation-Protected Securities are high for a reason, but are they high enough to be a “buy”? The 30-year TIPS yield nudged 2.90% this week, the highest since 2008, the 5-year yield 1.70% and the 10-year yield 2.20%, both the highest in a year.

These may look like decent real returns worth locking in for investors seeking inflation protection for the bond side of their portfolio. On the other hand, is there room for them to rise even higher in the coming weeks and months?

* Keepin’ it real #2

Are bond yields now high enough to become a problem for equities? Nominal and inflation-adjusted measures of the “equity risk premium” are at or close to levels not seen for two decades or more, which suggests they might be.

JPMorgan’s Nikolaos Panigirtzoglou says stocks are indeed expensive relative to bonds from a long-term investor’s perspective, but also notes there is “some way to go” until we are in exuberant late 1990s territory. “There is currently more limited room before a further rise in real bond yields starts becoming a problem for the equity market.”

What could move markets tomorrow?

• Developments in the Middle East

• Japan CPI inflation (April)

• Germany GfK consumer sentiment (May)

• Germany Ifo business conditions (May)

• Euro zone finance ministers and central bankers meet in Cyprus

• UK GfK consumer confidence (May)

• UK retail sales (April)

• Canada producer price inflation (April)

• Canada retail sales (March)

• U.S. University of Michigan inflation expectations, consumer sentiment (May, final)

• U.S. Federal Reserve Governor Christopher Waller speaks

Want to receive Trading Day in your inbox every weekday morning? Sign up for my newsletter here.

Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.

(Reporting by Jamie McGeever; Editing by Nia Williams)