All-Time Highs Back in the Picture

1. Stocks Come Back. Last week, Moody’s downgraded the U.S.’s credit rating due to concerns about the nation’s growing debt, now at $36 trillion. Moody’s is the last of the three major credit agencies to downgrade its credit, cutting it by one notch to “Aa1”. In our opinion, this is old news and Moody’s is late to make this decision – Fitch and S&P Global downgraded the U.S.’s debt in August 2023 and August 2011, respectively. The economy is strong, earnings-per-share (EPS) are running above double digits, and yields are going higher for the right reasons (growth is better). Deficits and debt have been an issue for a decade. While spiraling debt is not positive and needs to be addressed, we do not see this as new news.

The S&P 500 and Nasdaq both had a strong week, rising 5.2% and 7.1%, respectively. The S&P 500 is now just 3% off its February record close, and the Nasdaq is within 5% of its December peak. Just over a month ago, both indices were well over 20% off their all-time highs, now we are back knocking at the door. The U.S. and China easing trade tensions gave breadth to the markets, and sell-side firms removed their recession calls and increased year-end price targets. Big tech was the leader, with Tesla (TSLA) gaining 17% and Nvidia (NVDA) gaining 16% over the week. To note, one month ago, the CNN Fear and Greed index was at 14. Today, it indicates greed at 71.

Trump visited the Middle East last week in hopes of peace talks, looking to bring investments to the U.S. There has been $600 billion in commitments from Saudi Arabia, and Trump wants the figure to reach $1 trillion. More than the money is the partnership between the U.S. and the Middle East. It is becoming a friendlier environment and a lot of opportunities for U.S companies. U.S. exceptionalism is alive and well.

Economic data continues to hold on. The Atlanta Fed GDP Now tracker indicates 2.3% growth for the second quarter, and inflation at 2.3% y/y marks one of the lowest readings in the last four years. Additionally, earnings continue to bring life to the market. First quarter earnings are expanding at 12% y/y – well-exceeding estimates of 7% y/y heading into the quarter. Cyclicals are the way to play the recent rally – financials, industrials, discretionary, and technology. We are overweight in all of these sectors.

Chart 1: What a Year – Stocks are Now Positive in 2025^[1]

2. M&A is Back? Back in November, when Trump was elected, an easy call for financial markets was to claim that M&A was back and regulation would be eased. About four months into the presidency, neither of these claims has come to fruition. Tariff-related fears led April 2025 to be the lowest April since 2020 in terms of dealmaking. This year, $43 billion has been raised for initial public offerings (IPOs), behind the same period last year. But that said, with more clarity regarding the economy and tariffs, deals are starting to ramp up. EToro Group ETOR (Israel-based trading and investment platform) delayed its IPO following Liberation Day and went public a few days ago, and its shares rose 29% in its first session. Chime Financial is looking to be the largest IPO this year and plans to go public before this summer. The company was valued at $25 billion in its most recent funding round in 2021.

In the utilities space, NRG Energy (NRG) acquired 18 natural-gas power plants from LS Power, and Blackstone (BX) showed interest in acquiring the largest electric utility provider in New Mexico. Less than halfway through 2025, the utilities sector has already surpassed 2024 full-year M&A activity. A demand for power, data centers, and grid enhancement is behind this activity. We expect to see more of this throughout the year.

Chart 2: Data Center Demand is Booming^[2]

3. Fixed Income. Last week, U.S. Treasury yields rose across the curve as markets reevaluated the Federal Reserve’s trajectory in light of mixed economic indicators. A 90-day U.S.-China tariff agreement initially pressured yields upward, however, the momentum slowed as retail sales and inflation economic prints surprised to the downside. In summary, the 2-, 10-, & 30-year yields were higher by 11, 10, & 11 bps, respectively. This week will be light on new economic data, but there will be Fed-speak highlighted by the annual Federal Reserve Bank of Atlanta’s market conference.

Credit markets rallied last week as risk sentiment improved, driving spreads to new post- “Liberation Day” tights. Investment-grade spreads tightened 11 bps to +133 bps, and high-yield spreads narrowed 36 bps to +362 bps. The narrowing credit spreads have also brought back a surplus of new issues, as $42 billion investment-grade bonds were brought to the market last week.

The Tax-Exempt curve was flat as front-end yields were lower by 1-2 bps while longer-end yields were higher by 1-2 bps. Approximately $10 billion tax-exempt issuance is expected this week as demand continues to increase during the annual summer reinvestment period.

4. The Week Ahead.

Economics – Thursday: Continuing Jobless Claims, Initial Jobless Claims, PMI Composite, Existing Home Sales; Friday: Building Permits, New Home Sales.

Earnings – Tuesday: HD, KEYS, PANW; Wednesday: LOW, MDT, TGT, TJX; Thursday: ADI, ADSK, CPRT, DECK, INTU, RL, ROST, WDAY.

Stephanie Link’s TV Schedule:

Return for Selected Indices^[3]

Source:

[1] Source: FactSet. As of May 16, 2025.

^[2] Source: Strategas. As of May 14, 2025.

^[3] Source: Bloomberg. As of May 19, 2025.

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