Gains, Groans, and Government IOUs

For the week ended 5/17/2025.

Good morning, shall we start with the good news or the bad?

Being the optimist I occasionally pretend to be, let’s kick things off on a high note.

Domestic stocks partied like it was 1999 last week, with the S&P 500 surging 5.3%. That impressive leap yanked year-to-date returns back into positive territory, now up 1.8% for 2025. Yes, after a bruising first quarter and a barrage of daily pronouncements from D.C. that managed to both amuse and unnerve global markets, we’re somehow back in the black.

Credit the resilience of the U.S. economy, retirement plan participants who keep investing paycheck after paycheck, or consumers who, despite feeling gloomier than a Monday without coffee, continue spending like Kardashians on Rodeo Drive. Whatever the reason, here we are.

Even better: every asset class tracked in MMM is now in positive territory for the year. Foreign bonds eked out a 0.4% gain on the low end, while foreign stocks strutted their way to a 13.0% YTD return. Nice.

And here's another reason to (cautiously) cheer: inflation continues its retreat. Headline CPI for April came in at 2.3%, the smallest 12-month increase since February 2021. That’s a steady descent from 3.0% in January, to 2.8% in February, 2.4% in March… you get the idea. It's not quite champagne-worthy yet, but maybe a celebratory espresso shot is in order.

Now for the buzzkill.

On Friday, Moody’s finally joined the credit rating downgrade party. The U.S. has officially lost its last AAA rating, dropping to Aa1. This follows earlier cuts from Fitch and S&P, so Moody’s was really just fashionably late. The rationale? No surprise; sky-high deficits and spiraling interest costs. In 2021, interest payments made up 5.2% of total federal spending. Today? Nearly 14%. In fact, so far this year, we’ve spent more on debt interest than on just about everything else except Social Security.

Let that sink in while you sip your morning brew: more than on national defense, more than Medicaid, more than income security programs like SNAP, military retirement, or unemployment compensation. It’s enough to make you nostalgic for the days when debt service didn’t require its own federal department.

And for those keeping score at home: if you spent $5 million a day (a slight upgrade from the $1 million-per-day pace I calculated last week), it would still take you over 500 years to spend $1 trillion. Yet somehow, Uncle Sam manages to burn through that in less than six months. Impressive, in a “hold onto your wallet” kind of way.

Looking ahead, it’s a relatively quiet week on the economic front, with the biggest data points being new and existing home sales for April. Let’s just say we’re not expecting a flood of upbeat housing headlines (see: mortgage rates, affordability, and the fact most people need to sell a kidney to make a down payment these days).

And with that, may you, dear reader, continue doing your patriotic duty - by spending. Uncle Sam has bills to pay, and your credit card is his favorite tool. Have a great week.

Interesting data point of the week.

Source: Visual Capitalist

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