Stocks soared last week after the U.S. and China agreed to a 90-day tariff pause on top of the tariff cuts that were also announced. And in a related story, an arsonist set my house on fire and then showed up with a hose, claiming credit for saving me.
The stock markets have now regained everything they lost after “Liberation Day” when the tariffs were first announced. They still sit below record highs reached in January and February. According to the Wall Street Journal, “Stocks appear expensive by typical measures such as price/earnings ratios.”
I could not tell you whether stocks will rise or fall in the short term, although over the very long term, stock prices tend to rise, for a variety of reasons (more money, more investors, fewer companies whose stock to buy…). But we have not yet seen all of the effects that the tariffs will have on household income and the economy.
Prior to this administration, average U.S. tariffs on foreign goods sat between two and three percent. Even with the recent tariff reductions, they now average between 10% and 20%. Walmart has announced that even while it tries to keep prices low at all times, it will be necessary for them to raise some prices, beginning this month. And we are still waiting for other retailers to follow suit.
All this is probably why the University of Michigan’s consumer sentiment index fell to its second-lowest reading since 1978 (announced on Friday). According to Barron’s, “The index fell to 50.8 from April’s reading of 52.2. The all-time low was a reading of 50 recorded in June 2022 when inflation hit a 9.1% annual rate.”
The economy remains strong, however. The Consumer Price Index (CPI) for April rose 2.3% compared to a year earlier – very close to the Federal Reserve’s target of 2%. This is a four-year low in the CPI. But according to the Wall Street Journal, “investors think it’s too early to gauge the full impacts of Trump’s trade policies.”
At the same time, the Producer Price Index (PPI) rose 2.4% for the 12 months ending in April. Which is good. But the Fed Chairman Jerome Powell said at a conference last week, “We may be entering a period of more frequent, and potentially more persistent, supply shocks – a difficult challenge for the economy and for central banks.”
The real-estate market remains snarled, with 30-year mortgages still hovering around 7%. And – say it with me – homeowners are unwilling to sell if they have an attractive mortgage, because they don’t want to end up in a new home with a 7% mortgage. At the same time, house prices are high and beginning buyers can’t afford the house OR the mortgage. New permits for building single-family homes fell more than 5% between March and April as homebuilders are afraid of getting stuck with spec homes.
Moody’s has finally joined other rating services (Fitch and Standard & Poor’s) in cutting the credit rating of United States debt. It fell from Aaa (practically no risk) to Aa1 (slight risk). Moody’s cited the $36 trillion dollar debt of the U.S. and the potential for rising debt-payment levels. And before you ask, yes, there are countries that are still rated AAA. Australia, Canada, Germany, and Switzerland all retain the highest rating, among others.
If you’re trying to wrap your head around $36 trillion, I recommend this game: guess how long it would take you to spend one trillion dollars total if you spent one million dollars each day. Are you guessing in your head? The answer is 2,740 years. And of course the debt is actually $36 trillion.
In the 1940s, Harvard bought a copy of the Magna Carta for $27.50. Turns out that copy was actually issued in the year 1300 and is worth tens of millions of dollars. Well, Harvard deserved some good news.
For the week ending on May 16th, the S&P 500 finished at 5,958, the Dow Jones Industrials at 42,654, and the Nasdaq Composite at 19,211. The yield on the ten-year Treasury Note closed at 4.441%. U.S. crude oil cost $62.24 per barrel, N.Y. gold cost $3,241.34 per ounce, and one Euro was worth $1.13.
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) The Wall Street Journal, The New York Times, USA Today, The Washington Post, Axios, Yahoo Finance, Bloomberg, Business Insider, Barron’s, MarketWatch, CNBC, CNN, The Economist, Bureau of Labor Statistics, 1440 Digest, Moody’s, Morning Brew, Reuters, UPI, and The Associated Press. If you have questions, please call us at 203.458.5220, or reply to this email to reach me, Liz Cook.
Endurance swimmer Lewis Pugh plans to swim all the way around Martha’s Vineyard in the next couple of weeks – a distance of about 62 miles. The temperature of the water will be approximately 47 degrees Fahrenheit, and the swimmer will not wear protective gear. Pugh says that he means to create awareness of how sharks are maligned and should be protected. Depending on how the swim goes, Pugh may instead create awareness of how tasty humans are.