The upward momentum of the S&P 500 (Index: SPX) reversed in the previous week. The index fell 2.6% to close out the trading week ending on Friday, 23 May 2025 at 5,802.82.

Figuratively speaking, Wall Street bears clubbed the index lower because of a politics-oriented event. The stage for that action was set late in the preceding week after Moody's Investor Service finally got around to stripping the U.S. government of its AAA credit rating, becoming the third of the three major firms that rate the creditworthiness of governments to do so. Standard and Poor took that action in August 2011 and Fitch Ratings did the same in August 2023. Moody's action was long-expected because outlook on the U.S. government's fiscal health turned negative in November 2023.

With investors' nerves sensitized to the prospect for higher interest rates that come from the U.S. government getting a lower credit rating, the progress of the "One Big Beautiful Bill" toward passage on Wednesday, 21 May 2025 jolted them. Interest rates jumped and stock prices fell as the projected deficit associated with the spending package was larger than expected. The bill would go on to pass in the narrowly divided House of Representative early in the morning of Friday, 23 May 2025.

But the bigger news was President Trump's threatened 25% tariff on goods imported to the U.S. by Apple (Nasdaq: AAPL), which knocked the S&P 500's largest component stock lower on the day, taking the index lower by a smaller percentage along with it.

The total negative change in stock prices however wasn't large enough to move the trajectory of the S&P 500 outside the redzone forecast range on the alternative futures chart. Here's the latest update of the chart:

We're continuing to monitor the S&P 500's trajectory with respect to the dividend futures-based model's projections to see if we might be on the cusp of a new market-regime-changing volatility event.

All in all, it's very rare to see a political event outside a change in tax rates produce a noticeable effect in stock prices, but an event that changes interest rates would be capable of the feat. Even so, the magnitude of the effects observed on each of the days they occurred don't even qualify as interesting in the context of the market's typical day-to-day volatility.

Here are the week's market-moving headlines.

Monday, 19 May 2025

• Signs and portents for the U.S. economy:
  • Moody's cuts America's pristine credit rating, citing rising debt
    • Moody's downgrade intensifies investor worry about US fiscal path
  • Oil edges lower as US and China growth concerns weigh
  • Trump tells Walmart to 'eat the tariffs' instead of raising prices
• Fed minions say their monetary policy is "in good place":
  • Fed's Williams says no significant move out of US assets seen so far, monetary policy in good place
• Bigger trouble developing in China:
  • China April industrial output, retail sales growth slow
  • China struggles to lift home prices as April shows no growth
• BOJ minions say they'll keep hike Japan's interest rates if economy grows:
  • BOJ to keep hiking rates if economy rebounds from tariff hit, deputy governor says
• Nasdaq, S&P, Dow finished mostly flat after Moody’s downgraded U.S. credit rating

Tuesday, 20 May 2025

• Signs and portents for the U.S. economy:
  • Oil steadies as market assesses US-Iran talks, demand signals
• Fed minion speculates big inflation wave will soon arrive, others think they're doing the right thing with monetary policy given their uncertainty:
  • US economy may be on the brink of price-hike wave, Fed's Bostic says
  • Fed's Musalem: current policy remains appropriate if trade tensions are durably de-escalated
    • Fed's Musalem: policy uncertainty has 'meaningful' impact on economic outlook
  • Fed officials take cautious view on US markets amid downgrade
• Bigger stimulus developing in China, Australia:
  • China cuts key rates to aid economy as trade war simmers
  • Australia's central bank cuts rates to two-year low of 3.85%
    • Australia central bank warns global trade war a major downside risk to economy
• BOJ minions thinking about bigger bailouts:
  • Japan's super-long bond yields soar to records as market frets about demand
  • Reaction to Japanese super-long bond yields hitting record highs
• ECB minion suddenly gripped by the obvious:
  • ECB's Escriva sees risks to global financial sector from U.S. trade policies
• Wall Street rally stalls near overbought levels, S&P snaps six-day winning run

Wednesday, 21 May 2025

• Signs and portents for the U.S. economy:
  • Moody's downgrade ripples through bond market, causes worries for stocks
  • Tepid demand for US Treasury auction shows investor jitters about tax bill, deficit
  • Oil prices fall on news that US-Iran will hold nuclear talks
• Fed minions keep looking for tariffs to make inflation much higher:
  • Fed officials expect tariffs to boost prices; White House downplays risk
• Bigger trouble developing in Japan:
  • Japan's super-long yields rise to all-time highs on fiscal, auction concerns
  • Japan's exports rise 2% on year in April, shipments to US slump
    • Japan's super-long yields rise to all-time highs on fiscal, auction concerns
  • Is Japan About To Hike Rates AND Restart Yield Curve Control?
• ECB minions don't believe markets, but do believe Fed will continue delivering dollars to prop up Eurozone economy; thinking about next rate cut:
  • ECB warns buoyant markets 'out of sync' with uncertain world
  • ECB has no doubt Fed will continue to supply dollars abroad
    • US Withdrawal: ECB Warns Of Dollar Shortage
  • ECB's Centeno: rate cuts below neutral level may be needed to keep inflation on target
• Wall Street slides, Dow falls 800 points as bond sell-off & fiscal fears batter sentiment
  • Wall Street stocks tumble as worries mount about US debt

Thursday, 22 May 2025

• Signs and portents for the U.S. economy:
  • House narrowly passes Trump's tax-cut bill
    • The One, Big, Beautiful Bill
    • New US tax bill will 'stabilise things' but increase deficit, JPMorgan's Dimon says
  • US real earnings stalled across age, income groups in past year, study shows
  • US existing home sales unexpectedly fall in April
  • Oil prices settle down on potential further increase in OPEC+ output
• Fed minions say they'll get around to resuming rate cuts later in 2025, argue about whether to make their economics forecasts available:
  • Fed's Waller sees path to rate cuts later this year, Fox Business reports
  • Plan to beef up Fed forecasts hits hurdle among its regional presidents
• BOJ minions say they they'll let Japanese government's bond yields continue spike for now:
  • BOJ policymaker rules out intervention to stem bond yield spike
  • Japan's possible response to rise in super-long bond yields
• ECB minions starting to think they may need to back off their rate cut excitement:
  • Case growing for summer pause in ECB easing cycle
  • With inflation nearly tamed, ECB keen to project stability, accounts show
• Wall Street stocks end flat in choppy trading as Treasury yields ease
  • Wall Street closes little changed as U.S. bond sell-off eases up

Friday, 23 May 2025

• Signs and portents for the U.S. economy:
  • Trump threatens new tariffs on European Union and Apple, reigniting trade fears
  • Trump signs executive orders aiming to expand nuclear power, speed up reactor construction
  • Oil gains on short-covering, nuclear talks
• Fed minions to use April 2025's market volatility as model for future stress tests:
  • Fed's Cook: April market volatility will help hone financial stability assessment
• Bigger stimulus/subsidies developing in China:
  • CATL Received More Chinese Subsidies In 6 Months Than BYD, Great Wall And SAIC Did All Year
• BOJ minions standing by to maybe hike Japan's interest rates later this year:
  • Japan's core inflation hits more than 2-year high, could force year-end BOJ hike
  • BOJ vigilant on markets as super-long yields soar
  • Japanese bonds rally after fiscal concerns send super-long yields to records
• Eurozone minions not happy with being in Trump crosshairs, ECB minions think they've beaten Eurozone inflation:
  • EU urges respect not threats as Trump pushes for 50% tariff
  • ECB confident that services inflation will moderate, Lane says
• Wall Street sheds nearly 3% for the week on fiscal concerns, Trump's tariff threats
  • Apple dives as Trump says tariffs must be paid on iPhones not made in US

The CME Group's FedWatch Tool showed no meaningful change from last week. It projects the Fed will avoid cutting the Federal Funds Rate until the conclusion of its 17 September (2025-Q3) meeting, at which time, it will cut rates by a quarter percent to a target range of 4.00-4.25%. After that, the FedWatch Tool forecasts the Fed will reduce U.S. interest rates a quarter point at a time at twelve-week intervals, coming after it meets on 10 December (2025-Q4) and 18 March (2026-Q1).

The Atlanta Fed's GDPNow tool projection of real GDP growth in the U.S. during the current quarter of 2025-Q2 remained steady at +2.4%, with no updates in the past week. The next update will come on 27 May 2025.

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