Look for a flood of earnings news from retailers. After last week’s guidance from Walmart (WMT) that it would be raising prices because if the Trump tariffs, investors–and the Federal Reserve–will be waiting to see if retailers without Walmart’s pricing and logistics clout will paint an even more dire picture on price increases–and thus future inflation.
Yesterday, Friday, May 16, Moody’s downgraded the United States’ credit rating from the highest Aaa rating to one notch below at AA1. This downgrade means the United States no longer maintains a triple A rating from any of the three major credit rating companies. Standard & Poor’s downgraded the United States in 2011. Fitch Ratings issued its downgrade in 2023.
Remember all those tariff negotiations that were supposed to take place during the 90-day pause of the April 2 higher global tariffs Not going to happen in most cases.
Today, the GOP-controlled House Budget Committee voted to reject the Trump Administration’s Big Beautiful Bill, which includes President Donald Trump’s $4.5 billion tax cut. The committee voted 16–21 against advancing the bill, with five conservative Republicans joining all Democrats in opposition. These Republicans voted against the bill because it failed to cut enough from spending and would add more that $2.5 trillion to the Federal debt over the next 10-years. Republican supporters in swing districts, on the other hand, argued that deeper cuts to safety net programs such as Medicaid would send the party to defeat un the 2026 mid-term elections.
Maybe Wall Street and the Federal Reserve are still cranking the numbers to see the effects of the Trump tariffs on U.S. inflation, but consumers have apparently already made up their minds. A big increase in expectations for future inflation was key in driving today’s drop in preliminary May Consumer Sentiment Index from the University of Michigan to 50.8 from 52.2 a month earlier. That reading was the second lowest on record and lower than all but one estimate in a Bloomberg survey of economists.
The CBOE S&P 500 Volatility Index (VIX) dropped another 4.24% today to 17.84. I think, once again, the financial markets have become way too complacent about risk. And so it’s time to buy Call Options on the Vix “fear index,” betting that at least one of the many potential volatility events on the horizon puts some fear back into the markets.
Walmart warned Thursday that price increases look certain–possibly within weeks–even after President Donald Trump announced a deal to reduce tariffs on Chinese exports to “just” 30%.
“We’re positioned to manage the cost pressure from tariffs as well or better than anyone, but even at the reduced levels, the higher tariffs will result in higher prices,” Walmart chief executive Doug McMillon said
The dollar erased this week’s gains on speculation that the Trump Administration favors a weaker dollar and will make promises to let currencies appreciate part of any trade deal with the United States.
U.S. crude stockpiles rose by 3.45 million barrels, the biggest gain since March, the Energy Information Administration said Wednesday. And this comes before the latest round of production increases from OPEC Plus have kicked in. In April. OPEC and its allies added just 25,000 barrels a day of production, a fraction of the scheduled 138,000 barrels a day production increases. A further boost to production quotas is expected at OPEC’s June 1 meeting.
Today’s Hot Button Moves NOW video is: Dollar Down, Yen and Euro Up. Recently, the market has bounced back from the dip after April’s tariff announcements, but there’s something people might be overlooking: if the Fed cuts rates due to an economic slowdown, the dollar will likely weaken. That’s not all bad—it could mean cheaper U.S. exports and lower gas prices globally (tariffs permitting). But it’s surprising how few investors are factoring this in. A while back, I added the Invesco Japan Yen Currency Shares Trust (ETF) to my volatility portfolio, and it’s already up about 10% year-to-date as the yen strengthens against the dollar. Similarly, the Invesco CurrencyShares Euro Trust (FXE) has gained 9.38% this year. (All those performance figures are from before the China tariff deal. Since then the dolor was up on Monday then down on news that the U.S. had signaled to South Korea that it would like a weaker dollar.) Living in Venice, I’ve noticed the euro’s strength firsthand—great for investments, not so great for my daily espresso budget! If you’re looking for a relatively safe play in uncertain times, shifting some dollar-denominated assets into yen or euro ETFs could give you a solid 3-6% return while the dollar softens. The U.S. Dollar Index (DXY) was (before Monday) already down nearly 8%, so diversifying could be a smart move.
To generalize, reading the current tariff situation after the China tariff “deal,” Wall Street sees less chance of a recession but still forecasts weaker growth, and strategists have pared back their expectations for Federal Reserve interest rate cuts to two or maybe just one in 2025 with the first cut not coming until December.
All estimates of the effect of the Trump tariffs and foreign retaliation are obviously shots at a moving target. But here’s how the Budget Lab at Yale sees the picture now. (This forecast includes all tariffs implemented in 2025 through May 12. It includes the effects of the lower rates with China, the deal with the UK, and the recently announced auto tariff rebate. The analyses assumes that the May 12 rates stay in effect indefinitely.)
