Since the S&P 500 bottomed on April 8th, the index is up close to 20% in just over a month, an extraordinary move amidst all the policy uncertainty and generally negative sentiment amongst consumers. The big debate now is whether this is a bear market bounce (a brief, strong rally amidst a broader downturn), or the beginning of a march to new highs. May is on pace to be another strong month for the S&P 500, with the index up close to 7% month-to-date. The move seen in the last 45 days reinforces the sound advice given in past newsletters – it is about time in the market, not timing the market.
S&P 500 since April 8th
Source: YCharts
Credit Rating Downgrade
Moody’s finally joined the other two rating agencies – Standard & Poor’s (S&P) and Fitch -in downgrading the US’s credit rating one level from Aaa to Aa1 – making the decision 14 years after the initial rating downgrade by S&P (2011), and the subsequent second downgrade by Fitch (2023).
Moody’s cited an inability of the nation to address large and growing deficits. Continuing, “successive US administrations and congress have failed to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs… In turn, persistent, large fiscal deficits will drive the government’s debt and interest burden higher.” With the federal debt approaching $37 trillion, this is not a new problem or concern – hence the original downgrade by S&P in 2011. It’s almost unfathomable that we have not run an annual budget surplus since fiscal year 2000 – under the Clinton administration. All signs point to higher volatility not only in the stock market, but also in the bond market. Moody’s Downgrade of U.S. Credit Rating Highlights Risks of Rising National Debt
Below is a graph I have used before, but highlights the importance of getting our debt under control (interest on debt):
Financial Planning/Investment Strategy Corner
Tax Legislation Update
Earlier in the week, the proposed tax legislation hit a couple of speed bumps as it worked its way through the House of Representatives. One main area of contention amongst House Republicans was the state and local tax deduction (SALT) cap. While the $10,000 SALT cap will be changed, the question is ultimately how high will the cap be? The original proposal was to increase the SALT cap to $30,000, with the latest proposal for $40,000 (with income phase-outs). As of Thursday morning, this version of the bill has passed the House, which will send the legislation to the Senate. However, this legislation does nothing to address our debt. House Reconciliation Bill Would Massively Increase Near-Term Deficits-2025-05-15
Yields on the Move
One area that is presenting some opportunities is in fixed income. The 10-yr Treasury is back above 4.5%, with the yield on the 30-yr surpassing 5% for the second time this week. While one can argue the reason for the increase in yields, the move has presented investors with an opportunity to lock-in attractive yields for the intermediate and long-term. Additionally, some intermediate-term municipal bonds have tax equivalent yields (what a taxable bond would have to yield to provide the same after-tax return as a tax-exempt bond) north of 6% - something we haven’t seen much of since the financial crisis. Why Are Munis Attractive Right Now? | Charles Schwab
Quick Hits:
- Mother’s Day has passed, meaning Father’s Day is right around the corner (hopefully this provides you with enough options 😊) - Uncommon Goods | 592 Unique Father's Day Gift Ideas for Dad 2025
- With baseball season in full swing, this was on my mind - MLB Ballpark Rankings for the 2025 Season
- Also on my mind (it always is) – food - 30 Easy Summer Desserts - Recipes by Love and Lemons
- A book I’m in the middle of that has profound, but simple advice- The Let Them Theory by Mel Robbins | Goodreads
Quote: “Dad: A son’s first hero, a daughter’s first love.” – John Walter Bratton
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