'Misbehavior' in the Strait: 8 Key Items Shaping the Stock Market Monday

These are the early headlines and other items poised to influence the market at the start of trading Monday. As we share this collection of market drivers, U.S. equity futures point to a lower market open.

1. President Trump said the U.S. Navy will start guiding ships from foreign countries through the Strait of Hormuz from Monday and warned that if Iran tries to disrupt the process, the American military will use force. (Axios) President Trump told reporters on Saturday that he could order renewed military action against Iran if it "misbehaves." (Axios) Iran has warned that “any foreign military force, especially the invading American army … will be attacked” if they try to approach or enter the Strait of Hormuz, according to a top military official. (CNN) Iran has said it stopped a US warship from entering the Strait of Hormuz. Two missiles hit the warship near Jask Island after it ignored Iranian warnings, according to Iran's Fars news agency. (Sky)

These developments are leading oil prices higher this morning, and that is weighing on U.S. equity futures following fresh all-time highs for the S&P 500 and the Nasdaq Composite Friday. Most would think the reports of Iran firing missiles on a U.S. warship would land in Trump's “misbehaves” category, so we'll be waiting to see how the president responds. With both the S&P 500 and the Nasdaq Composite in overbought conditions based on their relative strength levels, the prudent move is to proceed cautiously.

2. Global airlines have cut 2mn seats from their May schedules within the past two weeks, as concerns about fuel availability in the coming weeks intensify. Thousands of flights have been cancelled and several services have switched to smaller or more fuel-efficient aircraft to conserve fuel as they brace for supply disruption, according to data from analytics company Cirium. (FT) Several U.S. restaurant chains including Wingstop and Domino's reported weaker-than-expected sales growth in the latest quarter, saying that soaring gasoline prices caused by the U.S.-Israeli war on Iran have ​forced their customers to cut back on other spending. Many don't expect consumers to feel relief anytime soon. Analysts expect other restaurant chains also ‌will show declining sales growth in upcoming earnings including Shake Shack and Jack in the Box, according to LSEG averages. (Reuters)

In Friday’s Weekly Roundup, we flagged that as we move past last week’s big swath of tech earnings to more consumer-facing companies, we’re likely to see the follow through on higher energy and related prices as well as company pricing actions to protect their bottom-lines as best they can. What we see on the top lines from those consumer-facing companies will tell us how much demand destruction is occurring. Juxtaposing those figures against Costco's  (COST)  April sales report due on Wednesday, May 6, should be revealing.

3. Electricity is perhaps the most underrated issue of our time… Lately Americans have become fixated on the explosion in data centers and the power needs of artificial intelligence. That is actually a small part of a much bigger problem. Our grid is too old and our supply of electricity too small. If we don’t meet this moment, we will face an impoverished future of more expensive, less reliable energy, and slower economic growth. (NY Times)

This is a sharp reminder of the electrical pain point that we face, one that will be addressed, at least in part, by rising capital spending plans from electric utilities. That keeps us bullish on shares of Eaton Corp.  (ETN) , which reports on Tuesday, May 5. In late April, NextEra Energy  (NEE)  said its Florida Power & Light will spend $90 billion-$100 billion through 2032 to support Florida’s growing economy. On Friday, Dominion Energy  (D)  noted there is an upward bias to its $65 billion 5-year capital plan and later this week we’ll hear from American Electric Power  (AEP)  and Duke Energy  (DUK)  on that front.

4. GameStop Chief Executive Ryan Cohen made an unsolicited offer to buy eBay for about $56 billion and said he saw a path to make the e-commerce company a much bigger competitor to Amazon.com… Cohen told the Journal that putting his videogame retailer and eBay under one roof could create opportunities to cut costs and improve earnings. The two companies have some overlap already, including a focus on selling collectibles such as trading cards. (WSJ) Applied Materials has entered into a definitive agreement with ASMPT Limited to acquire its NEXX business, a supplier of large-area advanced packaging deposition equipment for the semiconductor industry. The deal expands Applied Materials’ panel-level advanced packaging technologies, designed to help chipmakers and systems companies build larger-body AI accelerators with higher energy-efficient performance. Financial terms of the transaction were not disclosed. (Pulse 2.0)

While not enough to declare today being a “Merger Monday,” it’s sufficient to say that M&A activity continues. We have our reservations about a potential pairing of GameStop  (GME)  and eBay  (EBAY) . As we’ve seen in the past, two relatively sizable companies coming together tends to not gel as well as promised, especially when one threatens a proxy fight on the other the way GameStop is with eBay.

We’re a bigger fan of well-thought-out, nip-and-tuck acquisitions like the one announced by Applied Materials  (AMAT) . Rising hyperscaler capex plans, memory shortages and the like keep us bullish on AMAT shares leading into the company’s next quarterly earnings report on May 14.

5. Nvidia-rival Cerebras Systems, which makes chips for artificial intelligence workloads, is aiming to raise $3.5 ​billion in its U.S. initial public offering. Sunnyvale, California-based ‌Cerebras is aiming to sell 28 million shares in the offering, priced between $115 and $125 apiece in the company's second attempt to go ​public after withdrawing a previous IPO filing ​last October. (Reuters)

Taken together with our above comments on M&A activity, Cerebras’s pending IPO, subject to its pricing, is a positive for investment banking fees. More importantly, the Cerebras IPO is a nice win for our shares of Morgan Stanley  (MS) , which is serving as the lead bank on the transaction. Key Cerebras customers include OpenAI, Amazon’s Amazon Web Services, Meta  (META) , and IBM  (IBM) , among others. On the back of rising hyperscaler capex spending and chip-capacity constraints, the timing for the Cerebras IPO looks better than good.

6. Economic data today per TipRanks: Factory Orders (March), The Senior Loan Officer Opinion Survey on Bank Lending Practices (April).

7. Companies reporting today per TipRanks: AM - Norwegian Cruise Line (NCLH) , Tyson Foods  (TSN) . PM - Advanced Energy ( (AEIS) ), Boise Cascade (BCC) , Diamondback Energy  (FANG) , onsemi  (ON) , Palantir  (PLTR) , Paramount Skydance  (PSKY) , Sonos  (SONO) .

Related: 5% on the 30‑Year Bond Is Huge, But Is It Really 'The Line in the Sand'?

At the time of publication, TheStreet Pro Portfolio was long AMAT, AMZN, COST, ETN, META, and PLTR.