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The Path of Least Resistance Seems To Be Up THE DAILY --- H.E.A.T. Torching Wall Street’s Obsolete Playbook. Delivered straight to your inbox 5 days a week. Subscribe Home Posts The Path of Least Resistance Seems To Be Up The Path of Least Resistance Seems To Be Up The 🔥 --- H.E.A.T.🔥 Formula : AI Driven Insights to Spark Your Portfolio Matthew Tuttle May 16, 2025 Subscribe now Share I will be on the Schwab Network today at 8:20AM talking about earnings SchwabNetwork.com In Today’s Issue: The path of least resistance seems to be up CoreWeave deep dive US poised do dial back bank rules from 2008-winners and losers and more…….. Next Webinar: Identifying and Profiting From the Top Themes in the Market 5/22 2pm EST GoTo Webinar dashboard.gotowebinar.com/webinar/6733673538207782492 Path Of Least Resistance Seems To Be Up Yesterday morning started out in the red and it looked like the rally maybe running out of steam, the bulls came out and the market ended well in the green. One catalyst could be rates. I mentioned I went long TLT the other day thinking rates may have topped. So far so good as it was up nicely yesterday and is up again pre market….. Jefferies closed out their short on 10 yr’s yesterday….. ❝ Yesterday morning we had exited our short position in USTs. The view was simply based on the fact that we had reached our target, and it's a good practice to stick to take profit levels. But 4.50% would be seen by a number of investors as being close to the middle of the expected trading range for 10Y USTs. The balance of risks between fiscal fears and economy slowing down suggests that USTs are likely to be in a range bound environment over coming weeks. Our bias remains to sell on any rallies and if yields drop back towards 4.25% or below, we would reinstate our short positions. -Mohit Kumar, Jefferies PPI was interesting yesterday, from Jefferies…. ❝ PPI – CO’S ABSORBING COSTS: April Producer Price Index fell 0.5% MoM- 1st monthly decline since Oct 2023 and biggest drop since April 2020. US manufacturers and service providers appears not to be passing on cost of tariffs as yet implying profit margins being squeezed.  PPI drop was largely due to a 0.7% drop in services prices - biggest monthly drop since the index began in 2009. BLS said more than two-thirds of decline could be traced to the final demand trade services index, which measures changes in margins received by wholesalers and retailers.  chief economist at tax and consulting firm RSM US stated that “ We can see the start of the trade war hitting corporate margins here and I doubt it will be much longer until that is passed on to the consumer ,”. WALMART – CASE IN POINT: CEO Doug McMillon highlighted how the recent reprieve was not big enough to avert price rises for its hundreds of millions of customers. “We will do our best to keep our prices as low as possible, but given the magnitude of the tariffs , even at the reduced levels announced this week, we aren’t able to absorb all the pressure…. higher tariffs will result in higher prices .” -Jefferies Daily Macro Could the Fed be behind the curve again? Probably…. ❝ FED MISTIMING RISKS HIGH : As per yesterday’s edition, respite in trade-war means we do not see a labour market weakness as lay-offs are postponed whilst underlying risk of future growth is still a risk. This means officials may wait too long to cut and the economy stumbles into a recession. Jobless Claims have been steady -  229k and unchanged from the prior week's figure and 1k > consensus and Continuing claims + 9k to 1.881m for the week of May 3). Job cut announcements are generating headlines, but companies are dragging their feet in executing on them for fear of being short-staffed in case uncertainty lifts. -Jefferies Daily Macro So bottom line is this, we know, or we think we know, that weakness from Liberation Day is going to show up in the hard data at some point, but it’s not in there now. Until it does, the path of least resistance for this market is up. However, we are extremely overbought and due for a pullback at some point. I would not be entering a ton of longs here. Interesting thematic piece from UBS this morning. Remember, the T in the HEAT Formula is for Themes. I believe you should be invested in today and tomorrow’s hottest themes….. ❝ Top themes and Top stocks EU Defense Spending remains the top scoring thematic basket in our rankings. EU Defense Spending continues to score very well across our metrics, especially following the large fiscal announcements earlier this year. The one detractor may be that the basket overall is starting to look a bit expensive but Dassault Aviation and Thales SA are both among the higher ranking names that still appear attractive on our Valuation score. US AI Winners and AI-exposed Semis have jumped up our rankings following recent multiple contraction. While we continue to have concerns over the capex to sales of hyperscalers (~22%) over the long-term, these names score as attractive in the near-term according to our quantitative framework. Broadcom , Alphabet , and Arista Networks are the highest scoring names within the theme. While questions around the return on Capex for hyperscalers remain, one way to maintain exposure to the theme is on the power side. EU Elecrification , EU Renewables , and AI Power all rank highly on our scorecard. US Reshoring stands out in our thematic rankings scoring well in Regime and Earnings metrics while Valuation and Sentiment are neutral. Emerson Electric , Primoris Services , and Dycom Industries are among the top scoring names in the theme. Questions around the health of the consumer remain as US Low Income , US Housing , Consumer Cyclicals , and EU Luxury Goods are the worst scoring themes this month hurt by Regime, Earnings, and Sentiment scores. In an updated scenario note our US Econ team expects unemployment will reach 4.6% by the end of 2025 , and even with tariff relief from new deals, we still see risks to the consumer going forward. Utilities and Comm Services remain the highest ranking sectors broadly across regions according to our scorecard. Semis & Equipment , Comm & Professional Srvcs , and Media & Entertainment , HC Equip & Srvcs are among the most attractive Industry Groups in the S&P 500. Chemicals , HH & Personal Products , Cons Dur & Apparel , and are among the worst scoring Industry Groups driven by Earnings, Sentiment, and Regime scores. Japan , Italy , and Spain screen as attractive country exposures this month broadly across scoring metrics. Spain has the strongest Earnings score across our country aggregates. In Emerging Markets, Israel screens attractive while Thailand and Saudi Arabia score weakest. DM countries are more attractive based on Regime Scores. -UBS Global Equity Strategy The most crowded trade in retail yesterday was buying the dip in UNH. Some people bought the stock, others bought calls, and other sold puts. I chose to sell puts but please don’t do that at home unless you know what you are doing. I pretty much caught the bottom and it’s up again this morning. Will most likely take profits today as my upside is limited and my downside isn’t. The media is dominated by 13F filings this morning. Remember, a 13F is a snapshot in time that’s 45 days old by the time you get it. It’s interesting, but you don’t know what that manager really has. That’s what I love about the way the Brendan Wood guys do it, their surveys focus on asking money managers what they are going to be buying, not what they owned 45 days ago. You can see my webinar about this below….. Here’s the latest SPAC IPO that spiked…. — # (# ) (full disclosure we own this in SPCX ) — # (# ) The E in the HEAT Formula stands for Edges. Edges can be structural or behavioral. but you have to be careful, most real edges get arbed out once everyone knows about them. Going short VIX ETPs isn’t one of those. The VIX ETPs have structural issues from the contango of the futures. Plus, VIX needs a reason to stay elevated as you can see from the above chart. DO NOT OUTRIGHT SHORT VIX ETPS!!!!! Every once in a while VIX will spike on you and you will get crushed. I would use put options. Don’t worry there will be an ETF for that soon :) CoreWeave Deep Dive CRWV is potentially a big AI player. They announced earnings yesterday that prompted some downgrades. The stock initially sold off hard, and then recovered a lot of the drop. It’s up this morning, perhaps on news that NVDA kept their full position in it’s 13F filing. I had GPT take a deep dive on the stock…. 1. Company Overview CoreWeave is a GPU-as-a-Service specialist built from the ground up for large-scale AI workloads. Unlike hyperscalers that retrofit existing data centers, CoreWeave’s entire stack—hardware, middleware, orchestration and power delivery—is optimized for GPU-heavy tasks (training and inference). Key differentiators: AI-Native Middleware Runs Kubernetes natively on bare-metal GPUs, avoiding hypervisor overhead and delivering ~20% better “model-flush utilization” (MFU) per dollar-watt. Preferred NVIDIA Partner Early access to next-gen GPUs via strategic investments from NVIDIA, locking in cutting-edge capacity before public cloud peers. Modular, Power-Efficient Architecture Purpose-built racks, custom power distribution and liquid-cooling options drive down opex vs. legacy co-locations. 2. Q1 & Guidance Takeaways Metric Q1 ’25 Actual Q1 ’24 Street Revenue $1.9 B (est. ~$1.65 B) n/a (–420% Y/Y*) $1.7 B EBITDA $480 M (+7% vs. est.) n/a $450 M Revenue Backlog (RPO)** $26 B (incl. $12 B OpenAI; plus $4 B Google) n/a n/a Contracted Power 1.6 GW (+0.3 GW seq) — — Active Power 420 MW (+60 MW seq) — — FY ’25 Revenue Guide $5.0 B $4.66 B $4.66 B FY ’25 Operating Income Guide $800–830 M $834 M $834 M FY ’25 CapEx Guide $20–23 B $18.4 B $18.4 B ❝ “+420% Y/Y” implies Q1 revenue outperformance driven by OpenAI and cloud-inference demand. *RPO excludes the $4 B Google deal announced post-quarter. Takeaway: Q1 results handily beat revenue and EBITDA expectations. Backlog growth to $26 B (pre-Google) with a 4-4.5 year weighted duration underpins multi-year visibility—yet management is plowing earnings back into growth via record CapEx (20–23 B vs. $18 B expected). 3. Growth & Investment Profile Data Center Footprint: ~32 global sites, >250 k GPUs, 360 + MW active power. Run-Rate Ramp: Active power to double by YE 2025; contracted power provides 4+ years of build-out runway. Revenue Scaling: Street models expect ~5× rev growth from $1.9 B (Q1 ’25 run-rate) to $5 B in FY ’25; bull case sees >8× growth by FY ’27 (to $15–20 B). Balance Sheet: Debt rising from <$8 B (FY ’ • 24) to ~$30 B by FY ’27 to fund rapid CapEx and PP&E expansion (>$40 B net PP&E). Execution critical to deliver free cash flow by Year 5 and justify multiple expansion. 4. Catalysts & Risks Catalysts AI-Inference Boom: As models proliferate, capacity needs surge; hyperscalers remain capacity-constrained. NVIDIA Partnership: Priority supply of H100/A100 successors cements technology lead. Success-Based Pricing: Deals scale capital investment from customer-pays‐for‐use, aligning cash flow to demand spikes. Risks CapEx Intensity: $20–23 B/year investment must translate into utilization and yield free cash flow; any delays (permits, build-out) amplify financing costs. Leverage & Dilution: Debt load (~3× net-PP&E) plus potential equity raises could depress returns if growth misses. Tech Obsolescence: Shortening GPU lifecycles may require faster hardware refresh, pressuring depreciation assumptions. 5. Competitive Positioning Competitor Differentiator CRWV Edge AWS/GCP/Azure Broad cloud services 20%+ MFU improvement; pure-play focus Modular design, bare-metal Kubernetes Preferred next-gen GPU access “Success-based” customer alignment 6. Potential Rating (1– • 10) Rating: 8 / 10 Upside : Huge runway from a sub-$2 B revenue base to >$15 B in 3 years; locked-in multi-year backlog and best-in-class efficiency underpin strong revenue visibility. Execution Risk : CapEx execution, leverage management and hardware-refresh cadence are key. If CoreWeave nails infrastructure builds on schedule and drives utilization, it can expand its multiple well above current levels. Bottom Line : CRWV is a high-conviction “pure-play” on the AI-compute shortage—with rare service-provider leverage to model-driven demand. Provided the build-out stays on track, it deserves a top-flight growth rating. US poised to dial back bank rules imposed in wake of 2008 crisis Regulators preparing to cut capital requirements that are the target of vigorous criticism from Wall Street www.ft.com/content/90196d6d-b147-4943-9b26-888c171d6a5a Banks are usually not of much interest to me, but I do always monitor the news for potential game changers. I had GPT analyze this article and come up with some winners and losers…. Below is the FT article’s playbook on who stands to win—or lose—if U.S. regulators dial back the post-2008 supplementary leverage ratio (SLR), freeing up roughly $2 trillion of bank balance-sheet capacity by excluding low-risk assets like Treasuries and central-bank deposits Financial Times . Winners Ticker Company Why Rating JPM JPMorgan Chase Largest U.S. bank by assets; can redeploy freed capital into Treasury inventories and repo financing, boosting NII and trading flow. 9/10 BAC Bank of America Heavy Treasury dealer and repo participant; lower SLR lets BAC scale back-book risk-weighted funding. 8/10 C Citigroup Global Treasury market‐maker; balance‐sheet relief accelerates cross‐border repo and flow trading. 8/10 WFC Wells Fargo Large commercial‐bank Treasury book; improved capital efficiency underpins both lending and trading. 7/10 MS Morgan Stanley Fixed‐income trading revenue tailwind as SLR cut allows bigger Treasury positions in principal markets. 7/10 GS Goldman Sachs Turbocharged FICC and repo desks; balance‐sheet capacity to regain market‐making share from HFTs. 8/10 STT State Street Historically “SLR‐constrained” per Morgan Stanley; will see the biggest direct boost to balance‐sheet headroom. 9/10 Losers Ticker Company Why Rating VIRT Virtu Financial Electronic‐liquidity provider; banks reclaim stripped-back market-making roles in Treasuries. 3/10 IBKR Interactive Brokers Lower‐risk balance‐sheet relief could spur banks to offer more competitive client financing. 4/10 Bottom Line: Rolling back the SLR is a clear positive for the big U.S. banks—especially JPM , GS and STT —by unlocking $2 trillion in low-risk capacity, boosting both net interest income and FICC trading. Conversely, pure-play electronic dealers like Virtu face margin pressure as incumbent banks re-enter Treasuries market-making in force. How Did You Like Today's Newsletter Love it It's Okay Not Great Login or Subscribe to participate Before you go: Here are ways I can help ‍ ETFs : We offer innovative ETFs that cover all aspects of The --- H.E.A.T. Formula, Hedges, Edges, and Themes. Consulting: I'm happy to jump on the phone with financial advisors at no charge. I've built a wealth management firm and helped other advisors grow their practices through the use of substantially differentiated investment strategies. If you want to talk just send me an email at [email protected] Monthly investing webinars Rebel Finance Podcast https://www.youtube.com/@TuttleCap Wealth Management-Coming Soon Paid Newsletter Service-Coming Soon All rights reserved. Keep Reading No posts found View more caret-right 0