Bloomberg Surveillance: Tariffs and Moody's (Podcast)

Bloomberg Surveillance on May 20th, 2025, featured Ed Yardeni discussing his S&P 500 target and the potential impact of tariffs on corporate earnings, amid concerns that US stocks may lag global peers. Hong Kong pension funds are worried about possible forced selling of US Treasuries following Moody's downgrade of US debt. The program also covered UK-EU trade relations, the divergence of liberalism and authoritarianism in Europe, and European leaders' disappointment with President Trump's call with President Putin regarding the Ukraine war.

Analysis

As of May 20th, 2025, the S&P 500's recent six-day winning streak is anticipated to pause, reflecting investor bets that US stocks will lag global counterparts. This caution is partly attributed to concerns voiced by Ed Yardeni of Yardeni Research regarding the potential negative impact of tariffs on corporate bottom lines. A significant market development is Moody's downgrade of US debt, which has prompted Hong Kong pension fund managers to express concern over potential forced selling of their US Treasury holdings; their investment mandates restrict allocations exceeding 10% of assets to Treasuries if the US does not maintain a AAA or equivalent rating. Conversely, European stocks are expected to outperform, driven by structural shifts such as increased investments in defense and infrastructure, as highlighted by Holger Schmeiding, Chief Economist at Berenberg. Geopolitical factors also weigh on sentiment, with European leaders expressing disappointment over a phone call between President Trump and Russian President Vladimir Putin. This interaction is perceived as a sign of US disengagement from diplomatic efforts to resolve the Ukraine war, potentially allowing Russia to stall negotiations by presenting maximalist demands, a view echoed by Dan Tannebaum of Oliver Wyman.

Key Decisions for Investors

• Investors should closely monitor the relative performance of US versus global, particularly European, equities, considering the potential headwinds from tariffs on US corporate earnings and structural tailwinds for European markets.
• The implications of the US sovereign debt downgrade by Moody's warrant careful observation, specifically its effect on demand for US Treasuries from large, rating-sensitive institutional investors and overall bond market stability.
• Geopolitical developments, including evolving US foreign policy regarding the Russia-Ukraine conflict and its impact on international relations, should be continuously assessed for their potential to influence market sentiment and specific sector performance.
• Consider the prospective impact of tariffs on corporate profitability within US-exposed portfolios and adjust sector allocations or stock selections accordingly if these risks appear to be materializing.