empty
 
 
23.05.2025 09:29 AM
The Market Tucks Its Tail

A necessary project at the wrong time. The House of Representatives has approved Donald Trump's tax cut initiative. The President hopes it will help stimulate the economy and offset shortcomings in trade policy. The problem is that investors are now focused on fiscal concerns following the U.S. credit rating downgrade. Fears that the plan could inflate the budget deficit by $2.7 trillion over 10 years are prompting a pullback in the S&P 500.

A larger deficit implies increased issuance of U.S. Treasuries, whose yields are surging rapidly. This comes as no surprise — investors are demanding higher returns. The effects are being felt in other markets as well, including Europe and Asia, drawing comparisons to the U.S. in the 1990s, the Eurozone in the 2010s, and the UK in 2022, when sovereign debt crises forced governments to abandon their plans.

U.S. Treasury Yield Dynamics

This image is no longer relevant

Moody's, in its downgrade, warned that U.S. federal debt could rise from the current 100% to 134% of GDP by 2025. If the White House fails to address the issue urgently, the bond yield rally will persist — bad news for consumers, who face higher loan interest rates, and for the Treasury, which must pay more on its borrowings. Ultimately, the broader economy will suffer.

As Washington rolls back tariffs and Treasury yields climb, UBS and Goldman Sachs recommend a barbell strategy: buying consumer-driven stocks while selling real estate equities sensitive to rising borrowing costs. The spread between the two sectors has risen to its highest level since 2023.

Relative Performance: Consumer vs. Real Estate Stocks

This image is no longer relevant

Fiscal worries have reawakened market volatility, which had subsided following the U.S.-China trade truce. This environment will likely persist as investors seek clarity on budget deficit risks. Even without a default on Treasuries, demand for them is unlikely to increase, especially from foreign investors. High yields may persist for an extended period — a bearish signal for the S&P 500.

This image is no longer relevant

So is it any wonder that the broad stock index ignored the positive May U.S. Composite PMI and FOMC member Christopher Waller's statement that the Federal Reserve will resume its monetary easing cycle in the second half of the year, provided tariffs stabilize around 10%? When fear rules the market, good news gets ignored.

Technical Outlook

The S&P 500 formed a doji bar following a wide-range bar on the daily chart, indicating uncertainty. It makes sense to add to short positions if prices fall below 5825 and consider returning to long positions on a breakout above the 5905 resistance level.

Gana con los cambios en el valor de las criptomonedas con InstaForex.
Descarga MetaTrader 4 y abre tu primera operación.
  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    UNIRSE AL CONCURSO
  • Depósito al azar
    ¡Haga un depósito en su cuenta de $3,000 y obtenga $9000 más!
    ¡En Mayo, sorteamos $9000 dentro de la campaña Depósito afortunado!
    Obtenga la oportunidad de ganar depositando $3,000 en una cuenta de operaciones. Tras haber cumplido esta condición, se convertirá en un participante de la campaña.
    UNIRSE AL CONCURSO
  • Opere de forma inteligente, gane un dispositivo
    Recargue su cuenta con al menos $500, regístrese en el concurso y tenga la oportunidad de ganar dispositivos móviles.
    UNIRSE AL CONCURSO
  • 100% de bonificación
    Su oportunidad única de obtener un bono del 100 % en su depósito
    OBTENER BONO
  • 55% de bonificación
    Solicite un bono del 55% en cada depósito
    OBTENER BONO
  • 30% de bonificación
    Reciba un bono del 30% cada vez que recargue su cuenta
    OBTENER BONO

Recommended Stories

¿No puede hablar ahora mismo?
Ingrese su pregunta en el chat.
Widget callback