May 26, 2025

“It is foolish and wrong to mourn the men who died. Rather we should thank God that such men lived,”
General George S. Patton.

Happy Memorial Day

As we start the official beginning of summer, lets remember what today really means, here are the numbers. The S & P 500 finished the week down 1.70%, the Dow jones Industrial Average lost 2.21%, the Nasdaq surrendered 1.06%. Internationally things were better with the FTSE 100 up .39% and the MSCI-EAFE was even for the week. The 2-Year Treasury Paid 3.993% and the 10-Year yield was 4.509%.

As we enter a shortened Holiday week with the end of May looming, in this upcoming week of May 26, 2025, global economic watchers will focus on several key developments, with the U.S. Federal Reserve taking center stage. U.S. markets will be closed on Monday for Memorial Day, but the rest of the week brings significant data releases. The most anticipated include the Fed’s meeting minutes from May 6–7, offering insight into how policymakers are balancing elevated inflation and a softening labor market. Additionally, the second estimate for Q1 GDP is expected to reaffirm the initial -0.3% contraction, though the Atlanta Fed projects a rebound to +2.4% in Q2. Friday’s personal income and spending data, including the Fed’s preferred PCE inflation gauge, will further influence market expectations for future rate decisions.

In other significant news…

As Egan Jones Rating Service reports, History was made when one of the last legacy rating firms cut their rating on the United States debt from “Aaa” to “Aa1”. In the minds of many senior analysts, the move was overdue. Perhaps the more relevant question is whether the action will be followed in coming years. For his second term, President Trump campaigned on a restoration of the country’s status, including a significant cut in government spending. While headlines were made about excess expenditures and potential fraud, in many cases resolution appears to be stymied by the courts. As we speak, arguments are being heard regarding the extent of the Executive Branch’s authority relative to the Judicial branch. While the new administration is likely to be successful in making some cuts, the issue is whether those cuts will be sufficient. While many will bemoan the loss of the country’s top credit rating, the reality is that it has been in the works for some time. The bigger issue is whether the country takes actions to improve or remains on its current path.

As Reported by Barrons reporter Connor Smith, the bond market took the wheel last Wednesday, and it steered the major indexes into their biggest hole in a month.

The S&P 500 fell 1.6%, while the Dow Jones Industrial Average dropped 1.9%. The Nasdaq Composite was down 1.4%. Stocks were trading sideways all morning, though a rebound in Alphabet shares at one point was carrying the Nasdaq. And the S&P 500 was briefly nearing breakeven. Most stocks were mixed amid a broader bond market selloff. Then came the 20-year Treasury note auction.  Normally 20-year Treasury auctions don’t garner much attention. Peter Boockvar, chief investment officer at Bleakley Financial Group, described them as the “low liquidity, lost child Treasury note where not many play around this maturity playground.” But this auction attracted quite a bit more attention with bond yields already on the rise amid worries about U.S.’s fiscal situation. The Moody’s downgrade of U.S. sovereign debt from Aaa to Aa1 late last week was top of mind amid efforts by the Trump administration to pass a tax bill that could add trillions to the deficit. In the end, the 20-year auction featured weak demand, meaning buyers needed to be induced with higher yields. That sent bond prices lower, and stocks followed along.

As we move into the final month of the Second quarter, Expect Import surge unlikely to repeat in Q2, Inventories likely to retreat moderately as firms sell stock piled items Private domestic investment is likely to continue to add given the administration’s policies

Announcements of trades deals with key partners should provide a positive tipping point.

On the inflation front…

Gas Prices Tumble Ahead of Holiday Weekend

Gas prices are likely to be at their lowest level since 2021 this Memorial Day weekend, just in time for nearly 40 million Americans to hit the road, according to industry estimates. Motorists can expect to spend an average of $3.08 for a gallon of regular gas over the federal holiday, according to one consumer-focused platform. That’s 50 cents a gallon less than Memorial Day in 2024.

And Congress?

The house did pass, as promised, the “Big Beautiful Bill” before Memorial Day, the Senate takes up the measure immediately with the assurance that the Senate will do its part or no August recess. Skeptics were convinced it could not meet the Memorial Day goal. So never underestimate what can be done when our elected officials’ feet are held to the fire. The impact is huge particularly on codifying the tax cuts, deregulation, and stimulus to get the US economy moving again. Remember all the number being bantered about seem to ignore the economic impact on growth and subsequent revenue, plus the huge ever-increasing investment in American manufacturing. This Bill is key to the Trump economic program and will either usher in great new prosperity or be a political nightmare for the Republicans.

What’s happening on the tariff war?  It seems the strategy continues to confound the critics, Today, the EU agreed to enter into negotiations (talk about herding cats) and as such President Trump announced a pause in the 50% tariff due to hit the EU in June, now July 9 is the date to allow time to negotiate. This seems to be the path forward as most of the countries of the world prefer the US to China. In the meantime, the Chinese have their hands full with civil unrest in its working class. All should help move the Chinese in the right direction.

Bad news, mortgage rate rose over 7% again and sales remain sluggish. The most promising development in the housing market for 2024 and 2025 is the increase in inventory. Inventory needs to return to pre-pandemic levels for the housing market to operate more effectively. The seasonal increase in inventory is much needed as the country is working its way back to normal. Again, once we get to 2019 levels, all the low inventory talk goes away. We get in the neighborhood of 6% things should improve.

Enjoy your holiday.

Mike