In the Loop – May 23, 2025

“In The Loop” is designed to give you a short update reflecting major developments, earnings, and investment trends across some core Equity Income and Growth holdings. All clients should be aware that individual buy/sell recommendations will be conveyed directly to you on an individual basis. Have a great weekend.

We cruised through last week with hopes that the meetings with China in Switzerland about tariffs were promising and this would reduce the odds of a trade war creating a recession in the US. This week, we started off the week with news that Moody’s Rating Agency downgraded the United States’ sovereign credit rating from Aaa to Aa1, citing the growing burden of financing the federal government’s budget deficit. Not to constantly quote Warren Buffet, but he says there is “Zero chance the US defaults on its debt”, which I believe as well. However, it did push yields on the 30 Year US Treasury Bond over 5% and the 10 Year over 4.5%. Higher rates act as like the braking system in your car. Higher the rates, generally slower the economy. The Federal Reserve has paused decisions on rates until they see how the proposed tariffs will impact the economy. They are most concerned with rising inflation. However, the markets still have two rate cuts priced in this year, and I would not be surprised to see three. I believe the uncertainty will eventually weigh on the economy, forcing the Fed to act. If tariffs end up at 10%, this can be managed between the exporter, importer and consumer. For investors looking for fixed income, 5+% does not look too bad. Also, this week, The House passed the “One Big Beautiful Bill”. Now it will move to the Senate for a vote. Once it is done, we can summarize the key provisions. On the equity front, there are reports circling that the Trump Administration could reduce the supplementary leverage ratio (SLR) on banks which could free up more capital for lending. We will pay attention to this potential announcement over the coming months. This would be positive for our financial holdings. Many of the company updates reflect what the President was doing during his recent trip in the Middle East.

Have a great weekend.