AE Wealth Management: Weekly Market Insights | 5/18/25 – 5/24/25
Weekly Market Commentary
THE WEEK IN REVIEW: May 18-24, 2025
Market focuses on reconciliation bill
For the first time in some time, markets weren’t focused on tariffs last week — at least until Friday. Most of the week was consumed with discussions of the tax package, which made its way through the House and is now off to the Senate.1,2 The White House is targeting July 4 for a signing date.
There’s an awful lot in the “Big, Beautiful Bill” for people to like and dislike, but this isn’t the place nor the time for that conversation. Like pretty much everything in our country these days, the bill is no different; there is over-enthusiastic support or deep dismay depending on how you see the world. The fact is that the Trump tax cuts were set to expire at the end of the year and will become permanent if the bill clears the Senate.
If the tax cuts were allowed to expire, we would revert to the higher pre-2017 tax levels and the market wouldn’t be happy.3 As for other provisions of the bill, we’re told it will be stimulative to the economy and usher in an era of unprecedented prosperity — which we could really use. Last week, we were reminded that we are still burdened with a national debt of over $36 trillion (more in the next section).4 It seems we can only unburden ourselves and future generations of that debt by growing the economy, controlling deficit spending and paying down our obligations.
While the bill was the primary focus last week, tariffs were still in the news. President Donald Trump announced he was going to slap the European Union with a 50% tariff because they weren’t taking negotiations seriously enough.5 So many things are deeply rooted in the EU that it’s not surprising the EU is difficult to wrangle in the tariff fight. The EU figured it would do what it always does — promise to have talks about talks, hoping to wait out the current administration so they can go back to doing what they’ve always done.
Trump also said Apple would be subject to a 25% tariff for iPhones not made in the U.S. and that it wasn’t enough for Apple to move away from China to India as the primary source of iPhone manufacturing.6 The Apple and EU announcements whacked the markets as we entered the long holiday weekend.
Moody’s is last ratings agency to downgrade U.S. debt
About 10 days ago, Moody’s downgraded U.S. debt. It wasn’t surprising since S&P Global and Fitch already downgraded our debt in 2011 and 2023, respectively. Moody’s explained the reason for the move:7
“Successive U.S. 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 U.S.’ fiscal performance is likely to deteriorate relative to its own past and compared to other highly rated sovereigns.”
Ouch! Translation: We have too much debt, and successive administrations (regardless of party) haven’t been serious about addressing deficit spending. So it came as no surprise that the 20-year bond auction didn’t go well last Wednesday.8 The 10-year treasury spiked over 4.5% and sent markets into a tailspin.9
Every once in a while, we remind folks in this commentary to keep an eye on bond auctions and how they behave, since it’s a signal things may not be as good as we think. This is a really simple concept: Stop spending money we don’t have and pay down the money we owe.
How do we get out of this? First, stop deficit spending. The government spends 50% more than it did before the pandemic ($4.1 trillion in 2019 vs. $6.75 trillion in 2024), and what are we getting for it?10 Next, start paying down debt by carving out a mandatory debt repayment in the annual budget. Finally, create an environment that fosters economic growth to generate more tax revenue for paying down debt, and don’t spend the money as soon as it comes in.
Imagine you make $50,000 a year and you have $10,000 in credit card debt. You can’t borrow anymore (unless you go to a predatory lender at really high rates) because you owe so much already (that’s kind of what the bond auction told us). You struggle to repay the money you owe, but then you get a $75,000/year job and use the extra cash to pay down your credit card bill. That’s what a stronger, faster, growing economy would do for us. It’s not that hard — we all do it through a household budget. But it takes discipline and focus, two qualities that aren’t abundant in Washington, D.C.
Coming this week
- We’ll get a read on the housing market with the Case-Shiller Home Price Index on Tuesday and MBA mortgage applications on Wednesday. Pending home sales will follow on Thursday.
- The first half of the week will also include consumer confidence and the minutes from the last Federal Reserve meeting.
- On Thursday, we’ll see unemployment claims and the first revision of first-quarter gross domestic product (GDP), which initially came in at -0.3%.11
- We’ll cap off the week with personal spending data via one of the Fed’s preferred inflation measures, personal consumption expenditures (PCE). It will be interesting to see if the decline in inflation persists with these readings.
- First-quarter earnings are all but done and have been pretty decent.12 With 96% of S&P 500 companies reporting results, 78% have reported positive earnings per share (EPS) and 63% have reported positive revenues. Earnings growth for the S&P 500 over the quarter was 12.9%, down from 16.9% the last quarter. For the current quarter, 47 S&P 500 companies have issued negative EPS guidance, while 40 have issued positive EPS guidance. Valuation is still a tad higher for the S&P 500, with the forward 12-month price-to-earnings (P/E) ratio at 21.1. This ratio is above the 5-year (19.9) and 10-year (18.3) averages.
Index Performance Returns % | |||||
| 1 WK | YTD | 1YR | 3YRS | 5YRS | |
| S&P 500 | -2.61% | -1.34% | 10.16% | 13.45% | 14.45% |
| NASDAQ | -2.47% | -2.97% | 11.96% | 17.55% | 14.98% |
| DJIA | -2.47% | -2.21% | 6.50% | 9.28% | 11.20% |
Interest Rates: | |||||
| 5/23/2025 | 5/16/2025 | ||||
| UST 10 YR Government Bond Yield | 4.51% | 4.45% | |||
| Germany 10 YR | 2.56% | 2.59% | |||
| Japan 10 YR | 1.51% | 1.45% | |||
| 30 YR Mortgage | 6.96% | 6.89% | |||
| Oil | $61.49/ppb | $62.60/ppb | |||
| Regular Gas | $3.18/ppg | $3.18/ppg | |||
| All data as of May 23, 2025 | |||||
Sources:
1 Scott Wong, et al. NBC News. May 22, 2025. “House passes sweeping domestic policy package after Trump and Speaker Johnson win over holdouts.” https://www.nbcnews.com/politics/congress/house-passes-sweeping-domestic-policy-package-big-win-trump-speaker-jo-rcna208417. Accessed May 26, 2025.
2 Jordain Carney. Politico. May 22, 2025. “Senate GOP preps for ‘one big, beautiful’ rewrite.” https://www.politico.com/live-updates/2025/05/22/congress/trump-bill-senate-rewrite-00365731. Accessed May 26, 2025.
3 Erica York. Tax Foundation. Oct. 24, 2024. “How 2026 Tax Brackets Would Change if the TCJA Expires.” https://taxfoundation.org/blog/2026-tax-brackets-tax-cuts-and-jobs-act-expires/. Accessed May 26, 2025.
4 FiscalData.Treasury.gov. “What is the national debt?” https://fiscaldata.treasury.gov/americas-finance-guide/national-debt/. Accessed May 26, 2025.
5 Elisabeth Buchwald. CNN. May 24, 2025. “Trump says he’s ‘not looking for a deal’ with the EU after threatening a 50% tariff.” https://www.cnn.com/2025/05/23/economy/trump-eu-tariffs. Accessed May 26, 2025.
6 Jesse Pound. CNBC. May 23, 2025. “Trump says Apple must pay a 25% tariff on iPhones not made in the U.S.” https://www.cnbc.com/2025/05/23/trump-tariff-apple-iphones-not-made-in-the-us.html. Accessed May 26, 2025.
7 Bram Berkowitz. The Motley Fool. May 22, 2025. “The U.S. Government’s Credit Rating Just Got Downgraded for the Third Time Since 2011. History Says the Stock Market Will Do This Next.” https://www.fool.com/investing/2025/05/22/us-government-credit-rating-downgrade-market/. Accessed May 26, 2025.
8 Karen Brettell. Reuters. May 21, 2025. “Tepid demand for US Treasury auction shows investor jitters about tax bill, deficit.” https://www.reuters.com/business/tepid-demand-us-treasury-auction-shows-investor-jitters-about-tax-bill-deficit-2025-05-21/. Accessed May 26, 2025.
9 CNBC. “U.S. 10 Year Treasury.” https://www.cnbc.com/quotes/US.10. Accessed May 26, 2025.
10 USA Facts. “What is the US federal budget?” https://usafacts.org/just-the-facts/budget/. Accessed May 26, 2025.
11 Bureau of Economic Analysis. April 30, 2025. “Gross Domestic Product, 1st Quarter 2025 (Advance Estimate).” https://www.bea.gov/news/2025/gross-domestic-product-1st-quarter-2025-advance-estimate. Accessed May 26, 2025.
12 John Butters. FactSet. May 23, 2025. “Earnings Insight.” https://advantage.factset.com/hubfs/Website/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_052325.pdf. Accessed May 26, 2025.
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