AFSM - Weekly Market Pulse: No Free Lunches

2025-05-19 07:28:00 ET

Summary

• It was a good week for stocks and the S&P 500 is now in positive territory YTD, but I wouldn’t be making any big bets that it is going to stay that way.
• Credit spreads continued to narrow last week, falling back to 3.2%, still above where they fell to after the election but at roughly the same level where they spent most of last year.
• The economic data last week was pretty much as expected, although the inflation data was a tad better.

Moody’s Ratings downgrades United States ratings to Aa1 from Aaa; changes outlook to stable

New York, May 16, 2025 — Moody’s Ratings (Moody’s) has downgraded the Government of United States of America’s (US) long-term issuer and senior unsecured ratings to Aa1 from Aaa and changed the outlook to stable from negative.

This one-notch downgrade on our 21-notch rating scale reflects the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns.

Successive US administrations and Congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs. We do not believe that material multi-year reductions in mandatory spending and deficits will result from current fiscal proposals under consideration. Over the next decade, we expect larger deficits as entitlement spending rises while government revenue remains broadly flat. In turn, persistent, large fiscal deficits will drive the government’s debt and interest burden higher. The US’ fiscal performance is likely to deteriorate relative to its own past and compared to other highly-rated sovereigns.

The stable outlook reflects balanced risks at Aa1. The US retains exceptional credit strengths such as the size, resilience and dynamism of its economy and the role of the US dollar as global reserve currency. In addition, while recent months have been characterized by a degree of policy uncertainty, we expect that the US will continue its long history of very effective monetary policy led by an independent Federal Reserve. The stable outlook also takes into account institutional features, including the constitutional separation of powers among the three branches of government that contributes to policy effectiveness over time and is relatively insensitive to events over a short period. While these institutional arrangements can be tested at times, we expect them to remain strong and resilient.

Walmart should STOP trying to blame Tariffs as the reason for raising prices throughout the chain. Walmart made BILLIONS OF DOLLARS last year, far more than expected. Between Walmart and China they should, as is said, “EAT THE TARIFFS ,” and not charge valued customers ANYTHING. I’ll be watching , and so will your customers!!!

Donald Trump, Truth Social

At a certain point over the next two to three weeks I think Scott and Howard will be sending letters out essentially telling people … we’ll be telling people what they’ll be paying to do business in the United States.

Donald Trump, At a business roundtable during his trip to the Middle East

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