The S&P 500 Index ($SPX) (SPY) Monday closed up +0.09%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +0.32%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.09%.  June E-mini S&P futures (ESM25) are down -0.01%, and June E-mini Nasdaq futures (NQM25) are down -0.05%. 

On Monday, stock indexes recovered from early losses and settled slightly higher.  Stocks rebounded on a wave of dip buying by investors and comments from Treasury Secretary Bessent, who said the government is determined to lower spending and grow the economy.

Stocks on Monday initially opened lower after Moody's Ratings stripped the US of its top credit rating.  Late last Friday, Moody's Ratings downgraded the US government's credit rating from Aaa to Aa1, citing a ballooning budget deficit and fiscal concerns.  The dollar also fell to a 1-week low, and the 1-year T-note yield jumped to a 5-week high of 4.562% as investors shed dollar assets on the news. 

The US already lost its top credit rating from S&P in 2011 and from Fitch in 2023.  With its downgrade on Friday, Moody's caught up with its competitors. 

The amount of outstanding Treasury securities has soared from $4.5 trillion in 2007 to nearly $30 trillion today, reflecting the explosion of government borrowing during the pandemic and the persistent inability of the US to curb its federal budget deficit.  Sifma, a bond market trading group, reports that annual gross sales of government debt ballooned from $362 billion in 2007 to $2.6 trillion last year. Also, the ratio of total US public debt to the size of the economy has risen from about 35% in 2007 to 100% today, according to the Congressional Budget Office.

Monday's US economic news was bearish for stocks after the Apr leading economic indicators fell -1.0% m/m, right on expectations and the biggest decline in over two years.

Comments Monday from Atlanta Fed President Bostic were bearish for stocks and bonds when he said, "Given the trajectory of our two mandates, I worry a lot about the inflation side, and mainly because we're seeing expectations move in a troublesome way." He said he is leaning toward only one Fed rate cut this year.  He added that last Friday's decision by Moody's Ratings to downgrade their rating of US debt could have a negative impact on US companies and households who seek to borrow money.

Other Fed comments on Monday signal policymakers want to wait for more information before deciding on the future of interest rates.  New York Fed President Williams said the Fed could take its time assessing new data before deciding on interest rates and that it "may need months" to better understand tariffs and other policies from the Trump administration and the outlook for the economy.  Also, Fed Vice Chair Jefferson said Fed policy is in a "very good place" and has a "moderately restrictive" effect on the economy.  He added, "Given the level of uncertainty that we're facing right now, I believe that it is appropriate that we wait and see how government policies evolve over time and their impact" on the economy.

The markets this week will focus on any tariff news or signing of any new trade deals.  On Thursday, weekly initial unemployment claims are expected to climb +1,000 to 230,00. Also, the May S&P manufacturing PMI is expected to fall -0.3 to 49.9.  Finally, on Thursday, Apr existing home sales are expected to climb +2.0% m/m to 4.10 million.  On Friday, Apr new home sales are expected to fall -4.7% m/m to 690,000.

The markets are discounting the chances at 8% for a -25 bp rate cut at the next FOMC meeting on June 17-18.

Q1 earnings reporting season is winding down.  So far, over 85% of companies in the S&P 500 have reported quarterly results, and 77% have beaten estimates, the highest since Q2 of 2024.  Earnings growth in Q1 is running at +13.1%, compared with just +6.6% expected before the start of the season.  Full-year 2025 corporate profits for the S&P 500 are seen rising +9.4%, down from the forecast of +12.5% in early January.  

Overseas stock markets settled mostly lower on Monday.  The Euro Stoxx 50 closed down -0.01%.  China's Shanghai Composite closed unchanged.  Japan's Nikkei Stock 225 closed down -0.68%.

Interest Rates

June 10-year T-notes (ZNM25) Monday closed down -6 ticks.  The 10-year T-note yield rose +3.5 bp to 4.463%.  June T-notes were under pressure Monday, and the 10-year T-note yield jumped to a 5-week high of 4.562% after Moody's Ratings late last Friday downgraded the US government's credit rating from Aaa to Aa1, citing a ballooning budget deficit and fiscal concerns.  The downgrade may prompt investors to demand higher yields to hold Treasuries.  Also, comments from Atlanta Fed President Bostic weighed on T-notes when he said he's seeing inflation expectations "move in a troublesome way." 

T-notes recovered from their worst level after US Apr leading economic indicators fell by the most in more than two years.  Also, a recovery in 10-year German bunds from early losses to higher on the day sparked some short covering in T-notes.

European government bond yields on Monday were mixed.  The 10-year German bund yield fell -0.2 bp at 2.588%. The 10-year UK gilt yield rose to a 5-week high of 4.726% and finished up +1.5 bp to 4.665%.

ECB President Lagarde said the dollar's recent decline against the euro reflects "the uncertainty and loss of confidence in US policies among certain segments of the financial markets."

ECB Governing Council member Muller said while it may be justified to ease monetary policy further, "it's not obvious to me that the ECB should significantly lower rates."

Swaps are discounting the chances at 91% for a -25 bp rate cut by the ECB at the June 5 policy meeting.

US Stock Movers

Recently beaten-down health insurance stocks rallied on Monday. UnitedHealth Group (UNH) closed up more than +8% to lead gainers in the S&P 500 and Dow Jones Industrials on signs of insider buying after an SEC filing showed CEO Hemsley and CFO Rex bought about $30 million worth of shares last Friday.  Also, Humana (HUM) closed up more than +3%.

Pharmaceutical stocks rose on Monday after recent losses. Moderna (MRNA) closed up more than +6%, and Gilead Sciences (GILD) closed up more than +3% to lead gainers in the Nasdaq 100.  Also, Biogen (BIIB) closed up more than +2%, and Merck & Co (MRK), Amgen (AMGN), AstraZeneca Plc (AZN), and Bristol-Myers Squibb (BMY) closed up more than +1%.

Gold mining stocks rose Monday, with the price of COMEX gold up by more than +1%.  Anglogold Ashanti Plc (AU) and Gold Fields Ltd (GFI) closed up more than +3%, and Newmont (NEM) closed up more than +1%.

Sight (RXST) closed up more than +14% after Wells Fargo Securities upgraded the stock to overweight from equal weight with a price target of $25. 

Take-Two Interactive Software (TTWO) closed up more than +3% after Morgan Stanley raised its price target on the stock to $265 from $210.

Solventum (SOLV) closed up more than +2% after being upgraded by Piper Sandler to overweight from neutral with a price target of $87.

AutoZone (AZO) closed up more than +2% after TD Cowen raised its price target on the stock to $4,300 from $3,900. 

Chip stocks retreated Monday.  ARM Holdings Plc (ARM) closed down more than -2% to lead losers in the Nasdaq 100.  Also, Advanced Micro Devices (AMD) and ON Semiconductor (ON) closed down more than -2%.  In addition, Marvell Technology (MRVL), Analog Devices (ADI), Intel (INTC), Microchip Technology (MCHP), NXP Semiconductors NV (NXPI), Lam Research (LRCX), and GlobalFoundries (GFS) closed down more than -1%. 

Energy producers and energy service providers moved lower on Monday. Chevron (CVX) closed down more than -2% to lead losers in the Dow Jones Industrials.  Also, Phillips 66 (PSX) and ConocoPhillips (COP) closed down more than -2%.  In addition, Devon Energy (DVN), Diamondback Energy (FANG), Schlumberger (SLB), Haliburton (HAL), Occidental Petroleum (OXY), Exxon Mobil (XOM), and Marathon Petroleum (MPC) closed down more than -1%. 

Reddit (RDDT) closed down more than -4% after Wells Fargo Securities downgraded the stock to equal weight from overweight. 

Shake Shack (SHAK) closed down more than -1% after TD Cowen downgraded the stock to hold from buy, citing an already high valuation amid a challenging consumer spending backdrop. 

Earnings Reports (5/20/2025)

Amer Sports Inc (AS), Eagle Materials Inc (EXP), Home Depot Inc/The (HD), Keysight Technologies Inc (KEYS), Palo Alto Networks Inc (PANW), Toll Brothers Inc (TOL), XP Inc (XP).