May 22nd, 2025: Weekly Market Review

1. It’s a quiet week of economic data before Memorial Day, but Moody’s downgraded U.S. debt from Aaa to Aa1 over the weekend (on 5/16/25), following S&P (2011) and Fitch (2023), citing $36.2 trillion debt (125% of GDP) and 9% deficits by 2035. 

Markets barely reacted, with the S&P 500 up 0.09% on May 19, yields rising (10-year at 4.455%), and the dollar slipping (Dollar Index 100.25 to 100.15). A U.S.-China tariff truce (30% tariffs) and consumer spending (Chase data up 2.3% YoY) drove optimism, despite analysts calling the downgrade a “non-event.”

Moody’s action highlights U.S. debt woes, worsened by a proposed tax bill adding $3.3–$5 trillion to debt, raising bond yields and borrowing costs (mortgages above 7%). Credit markets expect further downgrades, with interest payments projected at 30% of revenue by 2035. Treasury Secretary Scott Bessent downplayed it, but the dollar’s decline signals concern, though its reserve status limits losses. Amid tariffs and China’s May 20 rate cut, debt risks could raise financing costs for U.S. manufacturing, despite market stability.  REF: Dailyshot, Moody’s

2. Apple Inc. is facing a critical challenge in artificial intelligence (AI), as outlined in Bloomberg Businessweek, despite hiring Google’s AI chief John Giannandrea in 2018, Apple’s Apple Intelligence and Siri upgrades have faltered, with insiders calling it a “crisis.” 

Apple lags competitors like OpenAI, whose ChatGPT is 25% more accurate, and internal data shows years of catch-up needed. The revamped Siri, key for iPhone 16, missed its April 2025 launch, with features like voice-activated data retrieval failing in beta tests, as found by software chief Craig Federighi. Poor WWDC 2024 demos and low AI team morale threaten iPhone dominance and projects like robotics.

Apple’s AI struggles stem from strategic and organizational issues, risking its edge in a fast-evolving tech landscape. Unlike Google and Microsoft, which invest heavily in cloud and GPU infrastructure, Apple’s focus on on-device AI for privacy limits progress. Its proprietary large language models trail rivals like Mistral, and splitting its AI division in April 2025 signals a pivot, alongside talks with Perplexity AI. With the S&P 500 up 5.27% the week of May 19, 2025, Apple’s stock, down 11% YTD as of March, faces pressure. Failure to deliver robust AI could hinder growth in augmented reality and autonomous systems, where AI is vital.  Click onto pictures below to access videos.  REF: Bloomberg

3. At the AI Ascent 2025 conference, NVIDIA’s Director of AI, Jim Fan, introduced the Physical Turing Test, a benchmark for embodied AI where robots perform tasks like cleaning or cooking indistinguishably from humans, as presented on 5/7/25. 

He outlined NVIDIA’s simulation roadmap: Digital Twins (Simulation 1.0), virtual replicas using physics engines; Digital Cousins (Simulation 1.5), blending generative AI with physics; and Digital Nomads (Simulation 2.0), fully generative video models simulating complex interactions. A custom video diffusion model, mistaken for real footage, showcased training in a “multiverse simulation,” enabling an embodied scaling law for robotics within 2–5 years. This supports U.S. manufacturing reshoring, aligning with your interest in automation, by enhancing efficiency in industries like automotive.

Fan’s vision leverages tools like Omniverse to generate synthetic data, enabling zero-shot transfer where robots apply simulated skills to real tasks, such as factory material handling. This reduces reliance on large models, as seen in NVIDIA’s HOVER (1.5 million parameters), addressing U.S. labor shortages (2.1 million unfilled jobs by 2030). The Physical API aims to make robots manipulate atoms like software handles bits, transforming logistics and healthcare. However, ethical concerns and real-world reliability, amid tariff cost risks (e.g., U.S.-China truce, May 2025), pose challenges. Robust governance is needed to ensure safe deployment in dynamic settings. Click onto picture below to access video.  REF: SequoiaCapital

NOTE: Not investment advice or recommendations. Investor should consider the investment objective, risks, charges and expenses carefully before investing.  For additional information about this company, please visit referenced links listed above.  Read carefully before investing.

REF: https://investor.nvidia.com/home/default.aspx

**With the current macro-economic backdrop, below are areas we currently favor:

• Fixed Income – Short-term Corporates (Low-Beta)
• Fixed Income – Corporates High Yield as Opportunistic Allocation (Low-Beta)
• Businesses that contribute to and benefit from AI & Automation (Market-Risk)
• Cyber-Security & Software (Market-Risk)
• Biotechnology (Market-Risk)
• Financials (Market-Risk)
• Digital Asset – Bitcoin (Market-Risk/Hedge)
• Cloud Computing (Market-Risk)

4. World Watch

4A. ​ On May 20, 2025, the People’s Bank of China (PBOC) cut its one-year loan prime rate (LPR) by 25 basis points to 3.1% and the five-year LPR to 3.6%, the first reduction since October 2024. 

This move addressed U.S. trade tensions, with 30% tariffs on Chinese imports through late 2025, and domestic issues like deflation and a weak property sector. The cuts aim to boost borrowing, investment, and consumption to counter export disruptions, estimated to reduce U.S.-bound exports by 70%. Major state banks also lowered deposit rates to support liquidity, reflecting a coordinated response to sluggish retail sales and economic slowdown in April 2025.

Globally, China’s rate cuts fueled market optimism, contributing to a 5.27% S&P 500 gain for the week of May 19–23, 2025, alongside a U.S.-China tariff truce reducing tariffs from 145% to 30%. However, the truce is fragile, and tariffs could raise costs for U.S. manufacturers, including automation firms like Aspen Aerogels (ASPN). Domestically, the cuts aim to stabilize China’s economy, but analysts like Nomura’s Ting Lu doubt the 5% growth target without more stimulus. These measures highlight the challenge of balancing trade pressures and inflation, impacting global supply chains and U.S. reshoring efforts. Click onto picture below to access video from REUTERS.  REF: Bloomberg, REUTERS

4B. The UK economy grew by 0.7% in Q1 2025, exceeding the 0.6% forecast, propelled by strong consumer spending and infrastructure investment. 

This growth signals a rebound from 2024’s challenges, including high inflation and trade uncertainties, with services and production sectors driving progress. However, inflation jumped from 2.6% to 3.5% in April 2025, raising concerns about cost-of-living pressures. U.S. President Donald Trump’s 10% tariffs on British goods threaten export sectors like automotive and aerospace, despite a May 2025 tariff deal reducing tariffs on select UK exports (For example: whisky & cars) from 25% to 10%. Finance Minister Rachel Reeves’ tax hikes to fund public services may further strain consumers, with economists projecting only 1% growth for 2025 amid these global and domestic risks.

On May 8, 2025, the Bank of England (BoE) cut its benchmark interest rate by 25 basis points to 4.25%, its second reduction of 2025, responding to the inflation spike to 3.5% and U.S. tariff risks. The Monetary Policy Committee’s split vote (5 for 0.25%, 2 for 0.5%, 2 for no change) reflects uncertainty about balancing growth and rising prices. The rate cut seeks to stimulate investment and consumption by lowering borrowing costs, aligning with global easing trends, such as China’s rate cut on May 20, 2025. However, tariff-driven supply chain disruptions and elevated inflation could undermine economic stability, challenging the UK’s recovery and global trade dynamics.  Click onto picture below to access video.  REF: BBC, 4News

4C. An updated snapshot of the current global state of economy…

According to TradingEconomics as of 5/19/2025.  REF: TradingEconomics

• China’s surveyed unemployment rate edged down to 5.1% in April 2025, compared to both market expectations and the previous month’s figure of 5.2%. 
• Japan’s GDP shrank 0.2% qoq in Q1 of 2025, compared with market expectations of a 0.1% fall and after a 0.6% growth in Q4, flash data showed.
• The British economy expanded 0.7% on quarter in Q1 2025, compared to 0.1% in Q4 and forecasts of 0.6%, preliminary figures showed.
• The annual inflation rate in the UK jumped to 3.5% in April 2025, the highest since January 2024, from 2.6% in March and above forecasts of 3.3%.

5. Quant & Technical Corner – a selection of quantitative & technical data we monitor on a regular basis to help gauge the overall financial market conditions and the investment environment.

5A. Most recent read on the Fear & Greed Index with data as of 5/19/2025 – 8:00PM-ET is70 (Greed).  Last week’s data was 69 (Fear) (1-100).  CNNMoney’s Fear & Greed index looks at 7 indicators (Stock Price Momentum, Stock Price Strength, Stock Price Breadth, Put and Call Options, Junk Bond Demand, Market Volatility, and Safe Haven Demand).  Keep in mind this is a contrarian indicator!  REF: Fear&Greed via CNNMoney

5B. St. Louis Fed Financial Stress Index’s (STLFSI4) most recent read is at –0.4793 as of May 15, 2025.  Previous week’s data was -0.2767.  A big spike up from previous readings reflecting the turmoil in the banking sector back in 2023.  This weekly index is not seasonally adjusted.  The STLFSI4 measures the degree of financial stress in the markets and is constructed from 18 weekly data series: seven interest rate series, six yield spreads and five other indicators. Each of these variables captures some aspect of financial stress. Accordingly, as the level of financial stress in the economy changes, the data series are likely to move together.  REF: St. Louis Fed

5C. University of Michigan, University of Michigan: Consumer Sentiment for February [UMCSENT] at 57, retrieved from FRED, Federal Reserve Bank of St. Louis, April 25, 2025.  Back in June 2022, Consumer Sentiment hit a low point going back to April 1980.  REF: UofM

5D. The Chicago Fed National Activity Index (CFNAI) decreased to –0.03 in March from +0.24 in February. Two of the four broad categories of indicators used to construct the index decreased from February, and three categories made negative contributions in March. The index’s three-month moving average, CFNAI-MA3, decreased to –0.01 in March from +0.12 in February. REF: ChicagoFed, March’s Report

5E. (5/19/2025) The Conference Board Leading Economic Index (LEI) for the US fell sharply by 1.0% in April 2025 to 99.4 (2016=100), after declining by 0.8% in March (revised downward from the –0.7% originally reported). The LEI declined by 2.0% in the six-month period ending April 2025, the same rate of decline as over the previous six months (April–October 2024). The composite economic indexes are the key elements in an analytic system designed to signal peaks and troughs in the business cycle. The indexes are constructed to summarize and reveal common turning points in the economy in a clearer and more convincing manner than any individual component. The CEI is highly correlated with real GDP. The LEI is a predictive variable that anticipates (or “leads”) turning points in the business cycle by around 7 months. Shaded areas denote recession periods or economic contractions. The dates above the shaded areas show the chronology of peaks and troughs in the business cycle. The ten components of The Conference Board Leading Economic Index® for the U.S. include: Average weekly hours in manufacturing; Average weekly initial claims for unemployment insurance; Manufacturers’ new orders for consumer goods and materials; ISM® Index of New Orders; Manufacturers’ new orders for nondefense capital goods excluding aircraft orders; Building permits for new private housing units; S&P 500® Index of Stock Prices; Leading Credit Index™; Interest rate spread (10-year Treasury bonds less federal funds rate); Average consumer expectations for business conditions.  REF: ConferenceBoard, LEI Report for March  (Released on 4/27/2025)

We have experienced a “rolling recession” since June 2022 and are only now emerging from it. However, authorities are not labeling it a recession due to high employment data.

5F. Probability of U.S. falling into Recession within 3 to 4 months is currently at 74.4% (with data as of 05/19/2025 – Next Report 06/02/2025) according to RecessionAlert Research.  Last release’s data was at 75.4%.  This report is updated every two weeks. REF: RecessionAlertResearch

5G. Yield Curve as of 5/19/2025 is showing Normal.  Spread on the 10-yr Treasury Yield (4.46%) minus yield on the 2-yr Treasury Yield (3.97%) is currently at 48bps.  REF: Stockcharts   The yield curve—specifically, the spread between the interest rates on the ten-year Treasury note and the three-month Treasury bill—is a valuable forecasting tool. It is simple to use and significantly outperforms other financial and macroeconomic indicators in predicting recessions two to six quarters ahead.  REF: NYFED

5H. Recent Yields in 10-Year Government Bonds.  REF: Source is from Bloomberg.com, dated 5/19/2025, rates shown below are as of 5/19/2025, subject to change.

The 10-Year US Treasury Yield… The 10-Year Yield is indirectly related to inflation. I expect the 10-Year Yield to drop further as dis-inflation kicks in.  REF: StockCharts1, StockCharts2

10-Year Real Interest Rate at 1.66756% as of 5/13/25.  Last month’s data was 1.66841%.  REF: REAINTRATREARAT10Y

ICE BofA US High Yield Index Option-Adjusted Spread (BAMLH0A0HYM2) currently at 3.15 as of May 13, 2025.  This is a key indicator of market sentiment, particularly regarding risk and economic health.  At its core, the spread reflects the extra return investors demand to hold riskier corporate debt over safer government securities. High-yield bonds are issued by companies with lower credit ratings (below investment grade, like BB or lower), meaning they carry a higher chance of default. The spread compensates for this risk. When the spread is narrow—say, around 2.5% to 3%, as seen recently—it suggests investors are confident, willing to accept less extra yield because they perceive lower default risk or a strong economy. Narrow spreads often align with bullish markets, where cash is flowing, growth is steady, and fear is low.   REF: FRED-BAMLH0A0HYM2

5I. (5/19/2025) Today’s National Average 30-Year Fixed Mortgage Rate is 6.99% (All Time High was 8.03% on 10/19/23).   Last week’s data was 6.92%.  This rate is the average 30-year fixed mortgage rates from several different surveys including Mortgage News Daily (daily index), Freddie Mac (weekly survey), Mortgage Bankers Association (weekly survey) and FHFA (monthly survey).  REF: MortgageNewsDaily, Today’s Average Rate

The recent spike in the 30-year fixed-rate jumbo mortgage to 6.92%, compared to Freddie Mac’s rate at 6.76% and the Mortgage Bankers Association (MBA) rate at 6.84%, highlights key differences in the mortgage market. Jumbo mortgages, which exceed the conforming loan limits set by government agencies like Freddie Mac, typically carry higher interest rates because they are riskier for lenders. These loans are not backed by government entities, which increases the risk for lenders and, consequently, leads to higher rates. In contrast, Freddie Mac and MBA provide averages for conforming loans, which meet federal guidelines and have lower risk due to government backing, keeping their rates lower.

(5/13/25) Housing Affordability Index for Mar = 103.2 // Feb = 102.2 // Jan = 100.7 // Dec = 100.7 // Nov = 99 // Oct = 102.3. Data provided by Yardeni Research.  REF: Yardeni

5J. Velocity of M2 Money Stock (M2V) with current read at 1.383 as of (Q1-2025 updated 4/30/2025).   Previous quarter’s data was 1.387.  The velocity of money is the frequency at which one unit of currency is used to purchase domestically- produced goods and services within a given time period. In other words, it is the number of times one dollar is spent to buy goods and services per unit of time. If the velocity of money is increasing, then more transactions are occurring between individuals in an economy.  Current Money Stock (M2) report can be viewed in the reference link.   REF: St.LouisFed-M2V

M2 consists of M1 plus (1) small-denomination time deposits (time deposits in amounts of less than $100,000) less IRA and Keogh balances at depository institutions; and (2) balances in retail MMFs less IRA and Keogh balances at MMFs. Seasonally adjusted M2 is constructed by summing savings deposits (before May 2020), small-denomination time deposits, and retail MMFs, each seasonally adjusted separately, and adding this result to seasonally adjusted M1. Board of Governors of the Federal Reserve System (US), M2 [M2SL], retrieved from FRED, Federal Reserve Bank of St. Louis; Updated on April 22, 2025.  REF: St.LouisFed-M2

Money Supply M0 in the United States increased to 5,775,200 USD Million in March from 5,613,800 USD Million in February of 2025. Money Supply M0 in the United States averaged 1,183,266.29 USD Million from 1959 until 2025, reaching an all-time high of 6,413,100.00 USD Million in December of 2021 and a record low of 48,400.00 USD Million in February of 1961.   REF: TradingEconomics, M0

5K. In April, the Consumer Price Index for All Urban Consumers rose 0.2 percent, seasonally adjusted, and rose 2.3 percent over the last 12 months, not seasonally adjusted. The index for all items less food and energy increased 0.2 percent in April (SA); up 2.8 percent over the year (NSA). May 2025 CPI data are scheduled to be released on June 11, 2025, at 8:30AM-ET.  REF: BLS, BLS.GOV

 5L. Technical Analysis of the S&P500 Index.  Click onto reference links below for images.

• Short-term Chart: Trend Bearish to Bullish on 5/19/2025 – REF: Short-term S&P500 Chart by Marc Slavin (Click Here to Access Chart)

• Medium-term Chart: Trend Bearish to Rising on 5/19/2025 – REF: Medium-term S&P500 Chart by Marc Slavin (Click Here to Access Chart)

• Market Timing Indicators – S&P500 Index as of 5/19/2025 – REF: S&P500 Charts (7 of them) by Joanne Klein’s Top 7 (Click Here to Access Updated Charts)

• A well-defined uptrend channel shown in green with S&P500 broke away from the uptrend.  REF: Stockcharts

• S&P500 and CBOE Volatility Index (VIX) as of 5/19/2025.  REF: FRED, Today’s Print

5M. Most recent read on the Crypto Fear & Greed Index with data as of 5/19/2025 is 68 (Greed).  Last week’s data was 71 (Greed) (1-100).  Fear & Greed Index – A Contrarian Data.  The crypto market behavior is very emotional. People tend to get greedy when the market is rising which results in FOMO (Fear of missing out). Also, people often sell their coins in irrational reaction of seeing red numbers. With the Crypto Fear and Greed Index, the data try to help save investors from their own emotional overreactions. There are two simple assumptions:

• Extreme fear can be a sign that investors are too worried. That could be a buying opportunity.
• When Investors are getting too greedy, that means the market is due for a correction.

Therefore, the program for this index analyzes the current sentiment of the Bitcoin market and crunch the numbers into a simple meter from 0 to 100. Zero means “Extreme Fear”, while 100 means “Extreme Greed”.  REF: Coinmarketcap.com, Today’sReading

Bitcoin – 10-Year & 2-Year Charts. REF: Stockcharts10Y, Stockcharts2Y