The Good and The Bad

THE YOUNG INVESTOR

becoming a great investor one mistake a time

Welcome to This week’s edition of Market Bites

Grab a cup of coffee, get comfortable, and catch up on financial markets.

I’ve been doing the reading and scrolling, to bring you the most relevant updates.

Before we dive-in, take a look at:

MARKETS YEAR-TO-DATE

The Good

• The S&P 500 has rallied nearly 20% off the April lows.

• It’s retraced 84% of its peak-to-trough decline.

• We’re only 3%-4% off all-time highs.

Not exactly bear market behavior.

The market has never retraced this much of a drawdown and then gone on to make new lows 💪:

A Reluctant Bull Still Climbs

Strategists from Fidelity, JPM, and others are starting to concede this might be the real thing, a proper bull market continuation, just with some rough macro static.

• Jurrien Timmer sees the S&P returning to trend.

• JPMorgan’s trading desk sees the “core bull case intact.”

• Seasonality, AI optimism, and a resilient consumer are all helping the cause.

It’s a rally no one trusted. And maybe that’s why it keeps going.

The current bull market has now run slightly longer than the median bull market since the 1950s. So by historical standards, it’s not unusually extended, as we can see below:

Although we have no way of really knowing what comes next.

The AI Bull vs. The 1997 Internet Boom

On the very optimistic end, some are seeing in this market an analogy to the early internet days:

Is AI the new internet?

That’s what many are saying. And the pattern in the Nasdaq has been impressively consistent.

Even though the market crashed after 1999, if the analogy holds even loosely, were talking NASDAQ could rise anywhere between 100% to 300%.

And What if It Doesn’t?

Let’s say this isn't 1997 again. And the the U.S. stock market doesn’t continue to 🚀 

That’s still not a death sentence for a globally diversified investor.

As we seen, international stocks are finally moving:

You don’t have to bet on one country’s outperformance. You just have to be diversified.

The Bad

On Friday, Moody’s finally did what the other rating agencies already had, it stripped the U.S. of its AAA credit rating.

But despite the hype, the downgrade itself is probably not a big deal.

But it’s a symptom of larger problem.

It’s one more grain of sand on an already big pile of rising deficits, mounting debt,

The Math Isn’t Pretty

Treasury Secretary Scott Bessent went on TV and shrugged.

In other words:

Yes, the deficit is massive.
But if we grow the economy fast enough, it won’t matter.

It’s a neat story.
But is it running out of credibility?

Warren Pies @3F Research did the math:

At a 3.4% effective interest rate and a 3.2% primary deficit, the U.S. needs nominal GDP growth of 6.6% just to stabilize the debt.

Not reduce it.
Just keep it from getting worse.

That’s a high bar.

The Market has Already Reacted

And it wasn’t waiting for Moody’s.

• 30-year Treasury yields have continued to break out to multi-decade highs

• The latest 20-year bond auction flopped, triggering a risk-off move across equities on Wednesday

• Foreign demand for U.S. debt has been fading, steadily reducing one of the key historical supports for Treasury markets

It doesn’t help that at this precise moment the U.S. Congress is debating passing an extension to Donald Trump’s tax cuts.

Estimated to increase federal deficits by $3.8 trillion (by the Congressional Budget Office) 🫠.

The End of U.S. Exceptionalism?

Macro strategist Marko Papic put it bluntly:

For years, the U.S. got the benefit of the doubt.

Global capital flowed in. The dollar rallied. Growth stayed resilient.

That narrative is being questioned.

With even the MAGA faithful calling it out:

The world is watching what happens when the largest economy runs wartime deficits in peacetime:

How do you interpret all this?

In a recent podcast episode, Steven Englander, global head of FX research at Standard Chartered put it this way:

“The money’s still there (to buy U.S. Treasuries) but it comes at a different price now.”

He reframes the bond market shift not as a funding crisis, but a repricing of trust. 

Investors aren’t going to flee U.S. debt… they’re just demanding higher yields to hold it.

Why? Policy unpredictability, political risk, and big fiscal deficits have made the U.S. a little less “safe haven” and a little more “show me a premium.”

So with that perspective, always be careful about doom and gloom narratives.

Welcome to New Highs for BTC

After a big correction in April that took it below $80,000, BTC has broken out to new highs.

This indicates that the 4-year cycle is likely intact.

How much is left in the bull market:

If the above holds we are in the final stretches. With a final parabolic climb coming up next leading to the cycle top.

After that, a +50% drop.

Plan accordingly my friends.

I am on my way out of my crypto position. I don’t need to be a hero and tag the peak.

INTERESTING CHARTS of the week

Benefits of extending Trump’s Tax Cut are going to go mostly to the top 1%.

Japanese long bonds are continuing to break out into new multi-decade highs. It’s not just U.S. long-terms bonds in a structurally different place.

Big tech companies are announcing layoffs and directly referencing AI…

PARTING WISDOM

from DAVID DEUTSCH:

The man behind the QUOTE → quantum physicist and rebel thinker at Oxford who helped lay the groundwork for quantum computing. His books The Fabric of Reality and The Beginning of Infinity aren’t just about science, they’re about how knowledge grows, and why optimism is rational.

thanks for reading and have a great weekend,

Al Atencio