Each of the three major stock indices fell about 2.5% last week – reversing the trend we saw the week before. It started with the Moody’s downgrading of American debt from perfectly adorable (Aaa) to still kinda cute (Aa1) and ended with more than one pundit reminding us of the J. Paul Getty quote, “If you owe the bank $100, that’s your problem. If you owe the bank $100 million, that’s the bank’s problem.”
Deficits were on everybody’s mind as the Trump Big Beautiful Bill made its way through the House of Representatives. According to which expert you consult, over the next decade the BBB would add between $3 trillion and $5 trillion to the American debt, which already stands around $37 trillion. For the first time since World War II, American debt is now greater than American gross domestic product (GDP). It’s not a good look.
The BBB now travels to the Senate, where it is expected to be rewritten because there aren’t enough Republicans in favor of it to get it passed in its current form. Some Republicans want bigger spending cuts (coming for you, Medicaid) and some want no cuts in Medicaid (coming for you tax cuts). Democrats oppose the bill which would provide minuscule benefits to lower-income Americans and huge benefits to wealthy citizens. When the cost of tariffs is added in, plus the loss of Medicaid for millions, poorer people might actually end up even poorer.
If you have to borrow from MasterCard to make the Visa payments, you’re in trouble. That’s where the U.S. is now. We are selling new bonds to get the money to make the interest payments on old bonds. The auction of American debt that was held last week engendered only tepid interest from the bond-buying public, meaning that yields had to rise in order for the bonds attract buyers. Rumor has it that China and Japan are slowly and quietly selling their U.S. debt, which depresses prices and also causes yields to rise (prices and yields move in opposite directions). The more yields rise, the more it costs to pay the interest on those bonds, the more that we have to borrow, and so on.
For about two decades, the 30-year Treasury bond’s yield has maxed out near 5%. Last week the 30-year traded above 5% two times, and 30-year yields traded at their highest since 2007. That’s great for bond buyers, but not great for the government (the bond seller, i.e. the borrower). Bond yields reflect confidence in the U.S. economy, with low confidence manifesting in higher yields. So – oops?
Still, according to three Federal Reserve bank presidents, we should not expect a recession in the near future, nor a rate cut.
It has been about seven weeks since “Liberation Day” when President Trump first announced his plan to tariff the world (tariff is now a verb). So, how is it going? In April, tariff payments made by importers rose to their highest level ever as $16.5 billion was collected. It’s not enough to cover the tax cuts that Republicans want to renew, and it is generally seen as a regressive tax – hitting lower-income families harder than richer ones. Apparently rich families don’t buy lots of cheap Chinese goods from Walmart the way the rest of us do. (Looking at you here, beach chairs.)
The Treasury is ending penny production, and all of the pennies that you have hoarded in jars and cans are going to miraculously disappear. No, that won’t happen, but pennies will become increasingly rare as the Treasury retires them. If you are paying cash, prices will round to the nearest nickel. If you are paying with credit, prices with cents will still prevail. It will all be confusing, and will give us something new about which to complain. Coming soon!
In a brief roundup, housing sales are poor, companies are failing to fill job openings, and oil costs continue to fall. Oh wait. That last one is good news. The price of crude oil is down 12% since “Liberation Day”. Some analysts speculate that the Saudis, who control OPEC+, are trying to please President Trump with greater oil production, which reduces gas prices. Others think that as tariffs slow the global economy, demand is falling. OPEC+ will consider additional production increases at its meeting on June first.
For the week ending on May 23rd, the Standard & Poor’s finished at 5,801, the Dow Jones Industrial Average at 41,603, and the Nasdaq Composite at 18,737. The yield on the ten-year Treasury Note closed at 4.51%. U.S. crude oil cost $61.69 per barrel, N.Y. gold cost $3,357 per ounce, and one Euro was worth $1.14.
Elizabeth E. Cook
Partner, Diastole Wealth Management
News and information presented here was gathered from sources believed, but not guaranteed, to be reliable, including (but not limited to) Axios, Bloomberg, Business Insider, Barron’s, MarketWatch, Yahoo Finance, CNN, CNBC, The New York Times, The Wall Street Journal, The Washington Post, USA Today, Reuters, The Associated Press, Morning Brew, The Economist, The Hustle, and UPI. If you have questions, please call us at 203.458.5220, or reply to this email to reach me, Liz Cook.
Mattel, which had a huge hit with the Barbie movie, is going deep into popular culture (and county fairs everywhere) with its plan for a Whac-A-Mole movie. Whac-A-Mole was invented in 1975, which means that all of my memories of beating the game while in junior high school are fake. Still, one has to wonder what kind of plot the movie will have. The mafia takes on lawn care?