[Chart courtesy of MarketWatch.com]

1. Moving the market

Early trading saw two of the major indexes fluctuating near their unchanged lines, while the Nasdaq stood out with a clear upward move, reflecting pockets of bullish sentiment.

The market’s attention was firmly on the passage of a sweeping tax and spending bill in the House, which aims to lower taxes and boost military spending but is projected to add trillions to the U.S. deficit over the next decade.

The 30-year bond yield responded by climbing to its highest level since October 2023, as investors weighed the implications of higher government borrowing and fiscal expansion.

The bill, which now heads to the Senate, has sparked debate among lawmakers and analysts. While some argue that the tax cuts and increased spending could offer a short-term boost to the economy, many warn that the resulting surge in deficits will likely stoke inflation and drive bond yields even higher, making bonds less attractive as an investment.

This uncertainty, combined with ongoing questions about the impact of tariff policies, contributed to early weakness in equities.

Midday, the indexes attempted a rebound but quickly hit resistance, with both the Dow and S&P 500 ending the session flat despite bond yields easing off their highs.

Gold’s initial rally faded by the close, while Bitcoin saw significant volatility—setting a record but falling short of the $112,000 mark.

As noted by ZeroHedge, much of the recent Bitcoin movement has been driven by institutional investors, with the retail crowd largely sitting on the sidelines. This dynamic raises a key question:

Can renewed retail participation be ignited again, or will institutions continue to dominate trading activity?

[Chart courtesy of MarketWatch.com]

1. Moving the market

The markets opened on a weak note as rising bond yields and uncertainty surrounding the U.S. budget bill weighed on sentiment.

Traders remained focused on developments in Washington, where Republican leaders are working to finalize a bill aimed at lowering taxes while expanding deductions for state and local taxes. While potentially beneficial for taxpayers, the proposal could worsen fiscal deficits and reverse recent efforts at budgetary restraint.

Analysts expressed concern that the bill may do little to curb inflation or reduce national debt. These worries were reflected in the bond market, where yields climbed, pushing the 30-year back above the 5% mark. Confidence was further shaken by a poorly received 20-year bond auction, which reignited fears about bond market stability and drove yields even higher.

The spike in yields derailed a budding rally in equities. The major indexes reversed sharply into the close, with even the previously resilient “Magnificent Seven” stocks turning red. For the second consecutive day, retail dip buyers were notably absent—a trend highlighted by ZeroHedge.

As interest rates rose, the U.S. dollar weakened, gold reclaimed the $3,300 level, and Bitcoin surged to a new high of $109,500 before pulling back.

One analyst suggested that if Bitcoin continues to track global liquidity trends, it could reach $170,000 by August.

That’s a bold call—could he be right, or is this a case of irrational exuberance?

[Chart courtesy of MarketWatch.com]

1. Moving the market

A lack of positive sentiment weighed on early trading, sending the major indexes into the red, with the tech sector leading the decline. Despite a late-session recovery attempt, the indexes remained below their opening levels, as overall market momentum appeared subdued.

The S&P 500 has staged an impressive rebound from its April lows and now sits within 3% of its all-time high set in February. Much of this rally has been fueled by optimism surrounding tariff-related developments.

However, with the 90-day tariff pause with China set to expire in August, uncertainty looms. Whether the current tone of de-escalation continues will be key to determining if the market can break into new record territory.

Meanwhile, the “Magnificent 7” stocks continued their sideways drift, mirroring the broader market’s indecision.

Bond yields edged higher, with the 30-year briefly testing the 5% mark before easing back. The dollar softened, giving gold a boost—up nearly 2%—though it stopped short of breaching the $3,300 level.

Bitcoin surged past $107,000, continuing its rally in line with expanding global liquidity.

[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?