Stocks and Bonds Fall on Deficit Concerns and EU Tariffs

The Dow (-2.5%), NASDAQ (-2.5%), and S&P 500 (-2.6%) all fell sharply for the week.  Similarly, taxable bonds and tax-free municipal bonds fell about 0.5% last week.  The 10-year Treasury yield rose 0.07% to finish the week at 4.51%.

Last week was another example of fear driving the markets down instead of actual economic data.  Stocks and bonds both fell because of concerns with the budget bill passing the House.  If that bill passes, then it will add to our deficit and our mounting US debt.  Both are a legitimate concern for the longevity of the US economic system, as a huge government debt puts a strain on our economy and puts pressure on the value of the US dollar and Treasuries (government debt).  The chart below illustrates the mounting debt, as compared to US Gross Domestic Product (GDP – a measure of US economic growth).  We haven’t seen this level of debt to GDP since World War II about 80 years ago.

Source: Congressional Budget Office

As for “hard” economic data, the US Purchasing Manager Index (PMI) beat expectations on both services and manufacturing, registering a reading of 52.3, which is considered expansion.  Initial jobless claims, a leading economic indicator (LEI), fell last week.  Its 4-week moving average is 231,500, and a reading below 250,000 is considered a strong labor market.  Lastly, LEIs for April ticked down slightly, but mainly because of how tariff uncertainty adversely impacted consumer and business confidence.  In the end, economic data remains strong in the US and recession concerns are dwindling.  Let’s just resolve the deficit concerns and gain more certainty on the tariff situation so we can focus again on economic data, rather than fears, rumors, and concerns. 

 Have a great day and terrific week!

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