Market Musings 5/21/2025
Quick thoughts on the markets and major portfolio news. Not on Ursa yet? Download Ursa from the App Store!
Markets fall as economic fears surface in debt markets…
It started on Friday with the Moody’s downgrade.
Moody’s Ratings assesses the creditworthiness of companies, governments and securities to provide credit ratings.
On Friday evening, Moody’s lowered the US’s debt rating to Aa1 from Aaa. The former Aaa rating was the highest creditworthy level while the downgraded Aa1 rating is still a high rating, but lowered a notch to represent concern with the US’s rising debt.
Monday opened lower, but a strong retail investor “buy the dip” wave helped markets recover to end the day. However, debt markets finished higher.
The 30-year treasury bond topped 5% briefly on Monday and ended Wednesday above the mark. An increase in rates typically means investors see more risk－and therefore require more interest to buy the debt. While the debt market was rising, the S&P has fallen -2% since Monday.
So, why the delayed reaction? Well, likely a few things…
First, the macro uncertainty continues. We’ve been talking a lot about this over the past few months with #Tariffs and #ConsumerConfidence sentiment faltering.
While we’re off the normal quarterly cycle, it’s the heart of retail earnings right now. Retail earnings and outlooks have been mostly weak－warning of softening #ConsumerConfidence demand and vague #Tariffs price uncertainty.
Second, the US’s new proposed spending package may add trillions to the US debt over the next decade. In general for everyone, not just governments, holding more debt make repayment more risky.
And finally, weak demand for US debt. The US Treasury saw weak demand in its recent 20-year bond auction. This means there current is weak interest for US debt－so in order to sell, higher interest rates are needed. This also means the cost to fund the US government will be more expensive as well with higher interest payments.
So, why does it impact stocks?
Stocks or equities are considered risky assets while debt or bonds are typically more stable. However, uncertainty in one market can disrupt other markets. In addition, higher returns on more stable assets can create less demand for riskier assets.
The debt markets are still signaling concern with the macro uncertainty, even if optimistic equity investors have largely shrugged it off. We’ll continue to watch bonds as another signal on the macro.
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The statements, opinions and analyses presented here are provided as general information. This article is the opinion of the author. Anything within this article should NOT be considered an investment recommendation or advice. See Ursa’s full disclosures here.
Original Photo by Pixabay.