🤫 Consumer sentiment falls

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Good morning investors! The market is back and roaring but some analysts are still not very positive. Plus, BTC is roaring as it crossed the 107,000 mark – for the first time in four months.

Today we cover:

• Consumer sentiment falls

• Stocks gain again

• A look at the market

📊 Economy and News 

Consumer Sentiment Falls as Inflation Fears Surge Amid Tariff Impact

U.S. consumer sentiment dropped sharply in May, with inflation expectations hitting their highest since 1981, driven by fears over trade tariffs. The University of Michigan's index fell to 50.8—its lowest since June 2022—due to widespread concern about rising prices and potential shortages.

• Inflation Expectations:
  12-month inflation expectations soared to 7.3%, the highest since November 1981. Long-term expectations also rose to 4.6%, the highest since 1991.

• Partisan Shift in Sentiment:
  Sentiment among Republicans fell 7%, a first since Trump’s 2016 victory, showing growing unease even among his base. Tariffs were mentioned by nearly 75% of consumers.

• Economic Outlook:
  Slumping sentiment and rising prices hint at a pullback in consumer spending. Walmart and auto manufacturers warned of upcoming price hikes, while April retail sales were nearly flat.

• Impact on Housing:
  Single-family housing starts dropped to a 9-month low, and building permits declined 5.1%. A builders’ survey showed confidence at a 1.5-year low, with 78% citing cost uncertainty.

• Federal Reserve Challenge:
  Higher inflation expectations may complicate the Fed’s policy stance. Chair Jerome Powell warned of more persistent supply shocks, though rate hikes are unlikely soon.

• Tariff Costs:
  Economists noted that U.S. importers—not foreign sellers—are still bearing the brunt of tariff costs, contradicting the White House narrative.

Ray Dalio has raised concerns over Moody’s recent downgrade of U.S. creditworthiness, arguing that the new rating overlooks a critical risk: the federal government resorting to printing money to cover its debt obligations—a move that could erode returns for bondholders through inflation.

Moody’s became the third major credit rating agency—after Fitch and S&P Global—to cut the U.S. rating from the top-tier AAA to AA1. The downgrade was attributed to Washington’s persistent failure over the past decade to rein in soaring deficits.

Global hits:

• Euro-area inflation to fall below ECB’s target due to US trade policies.

• Egypt’s central bank expected to cut rates by 175 bps, whereas Bank Indonesia to cut rates on May 21 as rupiah stabilises.

• Dollar retreats on US ratings downgrade; trade tensions persist.

• Chile’s gross domestic product grew 0.7% in the first quarter, higher than expected.

Something about China: China’s retail sales rose 5.1% in April, falling short of the 5.5% forecast and down from March’s 5.9% growth, suggesting weak consumer response to stimulus measures. Meanwhile, industrial output rose 6.1%, topping expectations but slowing from 7.7% in March. Fixed-asset investment for January to April grew 4.0% year-on-year.

Also, the country is still busy negotiating with the US. It urged the United States to "immediately correct its wrongdoings" and stop "discriminatory" measures after the U.S. issued guidance warning companies not to use advanced computer chips from China, including Huawei’s Ascend AI chips.

Lastly, reports say that China’s state banks will cut deposit rates on Tuesday.

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📈 Stocks

S&P 500 5,963.60 (+0.088%)
DJIA 42,792.07 (+0.32%)
NASDAQ 19,215.46 (+0.023%)
BRENT CRUDE 65.71 (+0.26%)
* Prices as of May 20th, 12:20 AM UTC

S&P 500 Edges Higher For a Sixth Day

The S&P 500 managed a modest gain on Monday, shaking off early losses as Treasury yields retreated from session highs and investors downplayed the impact of a U.S. credit downgrade by Moody’s.

The rating agency lowered the U.S. sovereign credit rating by one notch from Aaa to Aa1, citing long-term fiscal concerns, including rising deficits and the challenges of refinancing debt amid elevated borrowing costs.

The downgrade initially rattled bond markets, pushing yields higher and weighing on equities. The 30-year Treasury yield briefly surged past 5%, while the 10-year yield climbed above 4.5%—levels that just weeks ago contributed to market turbulence and even forced the former administration to temper aggressive trade measures. Mortgage rates, which often follow the 10-year yield, are also likely to remain elevated.

Stocks opened sharply lower, with the Dow Jones Industrial Average down over 300 points and the S&P 500 slipping about 1% during the morning session. However, as yields pulled back from their peaks, major indexes pared their losses, with the S&P 500 closing slightly in the green.

Experts believe that investors were aware of the credit situation, hence it didn’t shock the market.

Looking ahead, market sentiment may hinge on the trajectory of Treasury yields and progress on international trade agreements. For now, investors appear cautiously optimistic that the market can maintain its momentum—if higher interest rates don’t scare them off first.

Check this: PMorgan CEO Jamie Dimon said clients of the bank can now buy bitcoin, but he reiterated his long-held skepticism about cryptocurrencies.

Elsewhere, Regeneron to buy bankrupt 23andMe, vows ethical use of customer DNA data.

Next, Alphabet’s Waymo wins approval to expand driverless ride-hailing service to San Jose. However, Ford kills project to develop Tesla-like electronic brain.

💵 Personal Finance

Markets Rally Hard—But Are Investors Having Too Much Fun?

The recent market surge feels like a well-earned party after a long stretch of panic. Since the April 7 lows, triggered by intense tariff threats, the S&P 500 has rebounded more than 23%, erasing most of the losses from the nearly 20% drop that began in February.

A combination of trade-war de-escalation, improved investor sentiment, and technical indicators signaling a bottom has helped fuel the rally.

Last week, the market regained key levels, including its 200-day moving average, while volatility collapsed. The VIX dropped from above 50 to below 20 at historic speed, suggesting a return to stability. Momentum signals imply the rally may have legs, but overbought conditions mean a short-term pullback is likely.

Some investors are beginning to treat this as another event-driven correction, similar to those in 1998, 2011, and late 2018, where policy shifts helped markets reverse sharply.

The Trump administration’s retreat from aggressive tariffs hints at such a pivot, even if the final terms are unclear. In response, equity strategists like Warren Pies have upgraded their outlooks, pointing to strong technical setups and renewed clarity around trade policy.

Retail favorites such as Robinhood and Palantir are soaring again, and new listings like eToro, CoreWeave, and others are drawing in bullish capital. AI-related plays, especially Nvidia, are surging as investor enthusiasm around next-gen infrastructure rebounds, brushing off April’s disruption from the DeepSeek AI challenge.

Despite the optimism, risks remain. The broader market’s valuation has returned to 21.5 times forward earnings—rich, but not extreme, assuming no major economic deterioration. Yet any real economic damage from lingering trade uncertainty, or signs of a slowing labor or housing market, could cut the celebration short.

Investors are watching for solid policy action to justify current prices. Without concrete trade deals or progress on fiscal policy—like the stalled Congressional budget bill—confidence could waver. And with bond yields pushing higher again, the macro picture could easily shift.

For now, the rally is powered by investors who feel underexposed and reluctant to miss out. But if exuberance turns into indulgence, markets could face a sobering reality check.

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