S&P Rebounds After Dip

⚖️ Despite the U.S losing its perfect credit rating from Moody’s, equities rebounded after suffering losses in early market hours, with the S&P 500 up 0.09% at closing.

May 20, 2025

Silver banana goes to…



In this issue of the peel:

  • 💸 The 30-year U.S Treasury yield jumped about 0.84% to 5.037%, the highest since October of 2023.

  • ⚖️ Despite the U.S losing its perfect credit rating from Moody’s, equities rebounded after suffering losses in early market hours, with the S&P 500 up 0.09% at closing.

  • 🤔 Is the current equity market overinflated? What is to come regarding inflation in the U.S, and what is the outlook for the U.S economy?

Market Snapshot

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Macro Monkey Says

Equities Edge Up After Moody’s Downgrade

Any rational person, even somewhat involved in finance, could easily conclude that after Moody’s decreased the credit rating of the U.S from Aaa (a perfect rating) to Aa1, stocks would decrease. 

It would decrease because Moody’s credit ratings would instill uncertainty within investors regarding not only the accumulation of national debt but also the positioning of the U.S economy and impending inflation expectations. 

While equities decreased in the early hours of markets, with the S&P 500 being down about 0.15%, they eventually rebounded into a marginal increase, with all major indices up on the day. 

The primary reason for this was that the U.S.’s major accumulation of debt and general fiscal irresponsibility was already factored into the stock prices, essentially rendering Moody’s downgrade meaningless in the stock market. 

Additionally, if we are to assume that investors were already taking into account the government's accumulation of debt, why did the bond market have a visceral reaction to the credit downgrade? For what reason would equities hardly react to a credit downgrade while bond yields spiked more than they have in over a year?

To reiterate, bond yields jumped to over 5%, which is the highest they have been since October of 2023. There are a few reasons why the bond market had such an extreme reaction to the credit downgrade, such as the nature of market sensitivity and the perspectives of different investors. 

When considering the nature of market sensitivity, it’s important to understand that the bond market reacts directly to changing credit ratings because this directly impacts the perceived risk of investing in the U.S treasuries. 

On the other hand, equities are far more dependent on factors like overall economic growth, consumer and market sentiment, as well as the performance of corporations. Therefore, when Moody’s changes their credit risk profile on U.S treasuries, it will significantly impact bond yields, not the equity market. 

In addition to that, the primary concern of bond investors would be the U.S government’s ability to pay off their debt (which would be the money lent to them through bonds), and a downgraded credit rating would obviously directly affect that. 

On the other side of the coin, equity investors would be significantly less concerned with the government’s ability to pay off their debt, and more concerned with the economy's overall performance and other factors like inflation. 

The Takeaway?

Moody’s credit downgrade signals a continued issue the U.S government has with its budget deficit, and it significantly drove up bond yields because bond investors need extra incentive to take on the added risk. Additionally, while the yield of the 30-year U.S Treasury significantly increased, bonds with shorter terms only increased marginally in comparison to the 30-year. 

Career Corner

Question

I have a question about applying for positions on the website and networking. Should I apply to a firm first and then connect with employees to set up calls, or should I reach out to employees at the firm, connect with them, and schedule a call before applying for a position? What would be the best strategy?

Answer

It depends on specific roles and timelines—ideally, it is great to network before applying, but if the application is open, you need to submit. You don’t want to be left out of the process just because you were too late! Most of these applications are rolling, so if you wait too long to apply, you could miss it entirely.

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What's Ripe

Sable Offshore Corp. (SOC) 14.4%

  • Sable Offshore Corporation, an oil and gas company, had investors enthusiastic about their future earnings after they announced that they would be resuming operations at SYU (Santa Ynez Unit). 

  • They said that at SYU, they would be delivering 6,000 oil barrels per day to the processing facility. Despite Sable Offshore’s impressive gains, the energy sector saw losses today with XLE (an energy ETF) down 1.30%. 

Hesai Group (HSAI) 10.1%

  • Hesai Group, a light detection and ranging sensor (used in autonomous vehicles) manufacturing company, had a successful day on the stock market. Hesai Group’s stock increased by over 10% for a few reasons: quite positive analyst sentiment towards their future performance. 

  • Many analysts also think that they are overweight in their industry. They’ve also recently partnered with Uber for operations of autonomous vehicles in Dubai, which was quite a significant move that instilled confidence within investors. 

What's Rotten

Archer Aviation Inc. (ACHR) 14.4%

  • Archer Aviation, an American aerospace company, had quite the week last week with its stock surging over 35%. Despite this, their stock price tanked over 14% on Monday after they reported earnings slightly below the expected margin. 

  • Additionally, investors are speculative regarding Archer Aviation’s ability to become profitable, especially considering they aren’t operationally profitable yet. 

Regencell Bioscience Holdings (RGC) 10.43%

  • Regencell Bioscience Holdings, a traditional Chinese medicine (TCM) company, has had quite the year. In the last month, their stock is up over 1,000%, and up over 7,000% YTD. That means if you invested $10 on January 1, 2025, you would have about $732, generating quite the return. 

  • Due to the massive stock price increase, RGC was considered overbought, so many investors decided to sell to cash in their earnings. 

  • In addition, many Wall Street analysts were quite concerned about the company’s valuation compared to its stock price, especially when considering its P/E ratio of about -640. 

Thought Banana

Stocks Overvalued? Inflation Up? Recession Ahead?

The S&P 500 and other major indices extended their winning streak on Monday, marking the sixth consecutive day in the green despite continued uncertainty regarding tariffs and inflationary expectations. 

Despite the fact that CPI came in slightly lower than expected last week, many economists are under the impression that tariff-induced inflation has yet to strike the U.S consumer, and that the market is currently inflating the true price of equities given the macroeconomic state of the U.S. 

Something to be considered in this situation is that even the dialed-back tariffs (anywhere from 10-30%) will still have a significant impact on businesses in certain sectors (like consumer discretionary), and that cost burden is still going to fall on the consumer to some extent. 

Furthermore, even 20% tariffs are a nightmare for clothing businesses that source internationally, for example. They will have no choice but to raise their prices in order to stay afloat, and if they face liberation-day type tariffs, it would be difficult to estimate what prices may look like. 

Another thing to consider is how President Trump’s tariffs' inflationary impact has not hit the average American consumer yet. This is because many companies that source raw materials or other components from countries like China paused all imports to the U.S when tariffs were announced, and then hastily shipped them over when tariffs were paused, therefore not increasing the price of production by drastic measures. 

Despite this, something to note is that this is not a long-term solution, and some companies have already announced impending price hikes. For example, Walmart announced in its Q1 2025 earnings report that it would be implementing price hikes as a result of costs that are “unprecedented in its history.” 

Many economists believe that inflation is going to be apparent in the coming months, and when that happens, the stock market is likely to sink significantly. 

The Takeaway?

While equities have been surging as of late, be careful when hopping on the tariff truce hype-train because no trade agreement has been made between the U.S and China. Beyond that, when inflationary pressures hit the everyday American consumer, it is safe to assume that there will be a reaction in the markets, and likely not a positive one. 

The Big Question: Tariffs paused inflation—but for how long before the real bill shows up?

Banana Brain Teaser

Previous

In a certain high school, 80% of the seniors are taking calculus, and 60% of the seniors who are taking calculus are also taking physics. If 10% of the seniors are taking neither calculus nor physics, what % of the seniors are taking physics?

Answer: 58%

Today

Tanks A and B are each in the shape of a right circular cylinder. The interior of Tank A has a height of 10 meters and a circumference of 8 meters, and the interior of Tank B has a height of 8 meters and a circumference of 10 meters. The capacity of Tank A is what % of the capacity of Tank B?

Send your guesses to [email protected]

❝

You can’t predict. You can prepare.

Howard Marks

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Chris, Vyom, Ankit, Mithun & Patrick