U.S. Credit Downgrade Sparks Volatility: Gold Rallies, Dollar Slips

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[Chart courtesy of MarketWatch.com]

  1. Moving the market

The major indexes opened in negative territory as markets reacted to Moody’s decision to downgrade the U.S. credit rating from AAA to Aa1. The move was driven by mounting concerns over the ballooning federal deficit and the challenges of refinancing government debt at higher interest rates.

This downgrade immediately pressured bond prices, sending yields sharply higher as investors demanded greater compensation for increased risk. Early session uncertainty was further compounded by lingering questions about the full impact of recent tariff policies on the broader economy.

Despite these headwinds, sentiment gradually improved throughout the day. As the session progressed, bond yields reversed course and dipped, while equities clawed back their losses and managed to close slightly in the green.

In the commodities space, gold rallied strongly, approaching the $3,250 level as investors sought safe-haven assets amid fiscal uncertainty and rising debt.

The dollar, meanwhile, weakened, falling back to last week’s lows, while Bitcoin experienced notable volatility, swinging from $107,000 to $102,000 before rebounding to $105,000.

Today’s market action confirmed our new domestic “Buy” signal, effective tomorrow, May 20. In anticipation, I took advantage of the early dip to establish new positions for client portfolios.

With the U.S. credit rating now downgraded and fiscal challenges mounting, will this rebound in equities prove sustainable, or are markets underestimating the long-term risks posed by rising debt and elevated borrowing costs?

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ETFs On The Cutline – Updated Through 05/16/2025

Ulli ETFs on the Cutline Contact

Do you want to know which ETFs are hot and which ones are not? Then you need my High-Volume ETF Cutline report. It tells you how close or far each of the 311 ETFs I follow is from its long-term trend line (39-week SMA). These are the ETFs that trade more than $5 million a day, so they are not some obscure funds that nobody cares about.

The report is split into two parts: The winners that are above their trend line (%M/A), and the losers that are below it. The yellow line is the line of shame that separates them. You can see how many ETFs are in each group and how they have changed since the last report (131 vs. 200 current).

Take a peek:

The HV ETF Master Cutline Report

If you are confused by some of the terms we use, don’t panic. I have a helpful Glossary of Terms for you.

If you want to learn more about the Cutline method and how it can make you rich (or at least less poor), read my original post here.

ETF Tracker Newsletter For May 16, 2025

Ulli ETF Tracker Contact

ETF Tracker StatSheet          

You can view the latest version here.

TARIFF TRUCE AND SOFT INFLATION DATA SPARK MARKET REBOUND DESPITE CAUTION

[Chart courtesy of MarketWatch.com]

  1. Moving the market

The markets began the day on a cautious note, with a disappointing consumer sentiment report halting the S&P 500’s four-day rally-a run that had been fueled by a temporary U.S./China tariff agreement and encouraging inflation data.

Despite the initial pause, the major indexes regained strength as the session progressed, buoyed by renewed optimism over global trade policy and softer-than-expected inflation figures.

The S&P 500 has rebounded sharply since the announcement of the 90-day tariff truce, now breaking above its widely watched 200-day moving average-a technical milestone often interpreted as a bullish signal.

Our domestic TTI has mirrored this upward momentum, and unless there is a sudden reversal, I anticipate re-entering domestic equities by next week.

However, consumer sentiment weighed on traders’ enthusiasm early in the session. The latest reading fell to 50.8 in May from 52.2 in April, while inflation expectations for the coming year surged to 7.3% from 6.5%, reflecting growing concerns about the impact of Trump’s tariff policies.

As the day unfolded, uncertainty over global trade policy eased and “soft” economic data improved, helping the major indexes stabilize and allowing bullish sentiment to return. Notably, inflation-related macroeconomic data continued to surprise to the downside, as highlighted by ZeroHedge.

This week also saw the largest short squeeze since last Thanksgiving, driving the Mag7 basket to continue its impressive rebound. Bond yields climbed for the third consecutive week, yet this rise did not negatively impact equities—a divergence from typical market behavior.

Meanwhile, the dollar strengthened for a second week, pressuring gold prices lower as some market uncertainties subsided. Bitcoin, after five weeks of gains, ended the week unchanged.

It’s worth noting that equities have just experienced one of the sharpest drawdowns in the past 75 years but have managed a swift recovery. Still, historical patterns suggest that the path for further gains may be challenging from here.

Regardless, we will continue to follow our TTIs, with a new “Buy” signal likely to be confirmed on Monday.

Still, the question remains: With markets at a crossroads, will the recent rebound prove sustainable, or will historical trends reassert themselves and cap further gains?

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Weekly StatSheet For The ETF Tracker Newsletter – Updated Through 05/15/2025

Ulli ETF StatSheet Contact

ETF Data updated through Thursday, May 15, 2025

How to use this StatSheet:

  1. Out of the 1,800+ ETFs out there, I only pick the ones that trade over $5 million per day (HV ETFs), so you don’t get stuck with a lemon that nobody wants to buy or sell.
  1. Trend Tracking Indexes (TTIs)

These are the main indicators that tell you when to buy or sell Domestic and International ETFs (section 1 and 2). They do that by comparing their position to their long-term M/A (Moving Average). If they cross above, and stay there, it’s a green light to buy. If they fall below, and keep going, it’s a red light to sell. And to make sure you don’t lose your shirt if things go south, I also use a 12% trailing stop loss on all positions in these categories.

  1. All other investment areas don’t have a TTI and should be traded based on the position of each ETF relative to its own trend line (%M/A). That’s why I call them “Selective Buy.” In other words, if an ETF goes above its own trend line, you can buy it. But don’t forget to use a trailing sell stop of 12%, or less if you’re feeling nervous.

If some of these words sound like Greek to you, please check out the Glossary of Terms and new subscriber information in section 9.

  1. DOMESTIC EQUITY ETFs: SELL— effective 4/4/2025

Click on chart to enlarge

This is our main compass, the Domestic Trend Tracking Index (TTI-green line in the above chart). It has now broken above its long-term trend line (red) by +1.68% but remains in “Sell” mode until we get more upside follow through.

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Markets Mixed As Tech Lags And Uncertainty Looms

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the market

Equities opened lower as early optimism faded, with all three major indexes dipping into negative territory. The temporary suspension of the U.S.–China tariff dispute faded from focus, offering little support.

By the close, only the Dow and S&P 500 managed to claw back into positive territory, while the Nasdaq remained in the red.

Investor sentiment remains cautiously optimistic. Recession fears have started to ease, helping lift markets, but a range of uncertainties continues to form a “wall of worry.”

The key question now is whether the current rally can broaden and sustain its momentum through the summer—or if it’s nearing exhaustion and vulnerable to a correction.

The tech sector has led the charge this week (excluding today), with standout performances from Nvidia and Tesla—both up over 14%. Meta, Amazon, and Alphabet have also posted solid gains.

On the economic front, April’s Producer Price Index (PPI) surprised to the downside, falling 0.5% month-over-month versus expectations of a 0.3% increase.

Retail sales rose 0.1%, in line with forecasts. Despite the positive inflation data, Fed Chair Jerome Powell cautioned that inflation could remain volatile.

Interestingly, the inflation surprise index dropped to its lowest level since 2020, fueling gains across a wide range of assets—including stocks (excluding the Nasdaq), bonds, gold, bitcoin, and crude oil.

Meanwhile, global uncertainty remains elevated, with the World Uncertainty Index still at record highs, as noted by ZeroHedge.

Can equities break through this glass ceiling—or is a pullback looming?

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Market Uncertainty Persists Despite Positive Middle East Headlines

Ulli Market Commentary Contact

[Chart courtesy of MarketWatch.com]

  1. Moving the market

Equities were mixed in early trading but gained some ground as bullish sentiment persisted.

The tech sector continued to lead, with Nvidia rising over 2% following news that Saudi Arabia purchased 18,000 of its highly rated AI chips. Fellow chipmaker AMD surged more than 7% due to a $6 billion buyback.

The S&P 500 finally reached positive territory for the year, despite previously being more than 20% below its record high set in February. With the easing of tariff wars and the reduction of levies, particularly between the U.S. and China, traders have shifted from bonds to equities, driving the S&P 500 above its widely followed 200-day moving average.

Whether this rebound has the momentum to push the indexes higher remains uncertain. Has this epic surge come too far too fast?

Despite positive headlines from the Middle East, attributed to Trump’s deal-making skills, market follow-through was weak, with only the Nasdaq closing solidly in the green.

Uncertainty persisted as bond yields continued their upward trend, with the 10-year yield topping 4.5% and the 30-year yield approaching 5%, as rate-cut expectations diminished.

Gold dropped again, losing its $3,200 level, and settling at one-month lows, while the dollar fluctuated to close unchanged. Crude oil drifted lower, as did Bitcoin, though the cryptocurrency found support at the $103k level.

More potentially market-moving data is due out tomorrow, including Retail Sales and the Producer Price Index (PPI).

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