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May 22, 2025 – Memorial Day Weekend is typically the unofficial start of summer for many. However, this year has been anything but typical. Corporate earnings have been holding up based on recent company reports and outlooks. Tariffs have dented a few earnings reports, but the consumer continues to spend. Credit spreads are not indicating a recession yet, although interest rates have been on the rise as Congress works on a spending resolution bill. Markets gave back some of their recent gains yesterday but are still only about 5% from their all-time highs. Not quite bear market territory. Anyone traveling this weekend to a national park should remember to bring their bear spray.

//  by Tower Bridge Advisors

Keep Your Bear Spray Handy
Anyone that has hiked in a national park, such as Yellowstone, knows that you have to bring bear spray with you. You may never see a bear and have no reason to utilize the bear spray, but it is a must-have in your arsenal. Similarly, portfolio diversification is important to balance out inevitable bear market sightings and to diversify risk. We do not need to look over our shoulders very far to see this. The Magnificent 7 technology stocks fell in the first quarter by about 16% while the equal weighted S&P 500 fell by less than 1%. Bear spray can keep the bear at bay for a while, but eventually markets will respond to interest rates and earnings. So far, earnings are holding up, but interest rates are moving in the wrong direction.

Look For Bear Signs
Stocks fell sharply yesterday after a disappointing Treasury bond auction accelerated a selloff in the debt market. Only 18 stocks were in the green yesterday out of the S&P 500. The 10-year U.S. Treasury yield hit 4.6% and the 30-year rate moved above 5%. It was the highest yield in the 10-year since February and the highest in the 30-year bond since October 2023. The S&P500 has gained 5% in May so far and is down about 0.6% year to date. Better-than-feared first quarter earnings have played a role in the equity market bounce since the early April reciprocal tariff announcement. The growth rate for Q1 S&P 500 earnings currently stands at +13.6% vs the +7.1% expected going into the quarter. Markets gave back some of their recent gains yesterday but are still only about 5% from their all-time highs. Not quite bear market territory.

This week we got a glimpse of consumer spending, the housing market, and the impact of tariffs from several companies. Home Depot# and Lowes#, both home improvement retailers, reported results for the first quarter that were better than feared. Sales comparisons were negative in Q1, but picked up in March and April, and momentum continued into May. Home Depot and Lowe’s both reaffirmed annual guidance, which offset worries over tariffs. Home Depot has worked to mitigate tariff impacts and expects to generally maintain current pricing levels. However, both companies cautioned that homeowners continue to face rate headwinds and are deferring larger projects.

Luxury homebuilder Toll Brothers# reported better than expected earnings, choosing to focus on profits over its sales pace. Home sales revenue increased 2% year over year in the recent quarter and home deliveries increased 10%. However, net signed contract value was down 11% and contracted homes were down 13%. Toll is holding the line on pricing to keep profit margins in better shape and reaffirmed its full year guidance.

Mortgage rates jumped to their highest level since February last week, with investors concerned about rising inflation and the impact of increasing deficits and debt. The average 30-year fixed-rate interest rate increased to 6.9%, about where it was one year ago. Applications for a mortgage to buy a home, which had been rising for several weeks, dropped 5% last week but were still 13% higher than the same week one year ago. Homebuyers are seeing more listings on the market than they did even a few months ago, but affordability remains an issue for many, except for at the high end.

On the retailing side, Amazon# CEO Andy Jassy said at the company’s annual shareholder meeting yesterday that the company has not seen any signs of consumers tightening their wallets in the face of higher tariffs or any meaningful increase in selling prices. At least not yet. Target’s# Q1 comparable sales fell 3.8% from the prior year, which was worse than expected, due to softer discretionary spending and declining consumer confidence. Target said it now expects a low-single-digit decline in sales this fiscal year. Consumers are not hibernating, but slowing down a bit.

I’m Just a (Big Beautiful) Bill
President Trump’s “Big, Beautiful Bill” narrowly passed the House this morning by a vote of 215 to 214. The bill extends previous tax cuts, which are due to expire at the end of this year, raises the limit on the deduction for state and local taxes to $40,000, temporarily exempts tips and overtime pay from taxes, and cuts some safety net programs. The bill will now head to the Senate where terms will most likely change, so the final structure remains to be seen. Stock market futures are indicated down this morning, while the10-year yield is only ticking up slightly in reaction.

Hikers are told to avoid using bear bells, as bears will not hear the bells until you are too close. It has been said that bells are not rung at market bottoms or tops either. This serves as a reminder that market turning points are difficult to predict and encourages a more disciplined, long-term approach to investing. On a can of bear spray: “Keep spraying until the bear changes direction.”

Naomi Campbell turns 55, Novak Djokovic turns 38, and songwriter Bernie Taupin turns 75.

Christopher Crooks, CFA®, CFP® 610-260-2219

Tower Bridge Advisors manages over $1.3 Billion for individuals, families and select institutions with $1 Million or more of investable assets. We build portfolios of individual securities customized for each client's specific goals and objectives. Contact Nick Filippo (610-260-2222, nfilippo@towerbridgeadvisors.com) to learn more or to set up a complimentary portfolio review.

# – This security is owned by the author of this report or accounts under his management at Tower Bridge Advisors.

Additional information on companies in this report is available on request. This report is not a complete analysis of every material fact representing company, industry or security mentioned herein. This firm or its officers, stockholders, employees and clients, in the normal course of business, may have or acquire a position including options, if any, in the securities mentioned. This communication shall not be deemed to constitute an offer, or solicitation on our part with respect to the sale or purchase of any securities. The information above has been obtained from sources believed reliable, but is not necessarily complete and is not guaranteed. This report is prepared for general information only. It does not have regard to the specific investment objectives, financial situation or the particular needs of any specific person who may receive this report. Investors should seek financial advice regarding the appropriateness of investing in any securities or investment strategies discussed in this report and should understand that statements regarding future prospects may not be realized. Opinions are subject to change without notice.

Filed Under: Market Commentary

Previous Post: « May 19, 2025 – Stocks have clawed back all their post-Liberation Day losses as the perceived impact of tariffs have lessened. But now comes the hard part. Whatever tariffs are imposed will have economic consequences that we are only just starting to see. The big tax bill as originally proposed is a budget buster. 10-year Treasury yields are now back above 4.5%. With hindsight equity investors overreacted after Liberation Day. The subsequent rally may have gone too far as well.
Next Post: May 27, 2025 – The House has passed Trump’s big beautiful bill and moved it on to the Senate. It’s a budget buster that offers something for all but will expand deficits meaningfully. It’s a bit of a mess that can be fixed if the Senate has the backbone to fix it. Wall Street will be watching, especially bond investors. »

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  • June 30, 2025 – Trump’s big beautiful bill is headed for the finish line. It isn’t done yet and likely will see further changes before it reaches his desk. As the administration buys the votes necessary for its approval, expect the impact on future deficits to rise. With that said, the bill will help to accelerate near-term growth. Second quarter earnings reports are just a couple of weeks away and they should be good. However, unlike Q1 when skepticism abounded, this time optimism is high. July is usually a good month for stocks but the sharp April-June rally may mute the pace of further gains.
  • June 26, 2025 – Labubu dolls are hard to get these days. These dolls are prized by children in China, along with some celebrity admirers such as David Beckham and Rihanna. The grimacing, elvish-looking creatures come in “blind boxes” that keep buyers in suspense over which one they might get, but can take weeks to acquire. They sell for as little as $20, but a rare variety recently sold at auction for $150,000. In spite of all the hand-wringing about inflation and tariffs, consumers around the globe continue to spend. However, patterns of spending have definitely shifted.
  • June 23, 2025 – Saturday’s bombing of Iran’s nuclear sites was shocking news but financial markets are taking the news in stride at least until they can assess the Iranian response. Economically, little has changed so far. The one elevated risk would be an attempted blockage of the Strait of Hormuz. While possible, that would be a very dangerous escalation that would evoke a powerful response. Markets, at least for now, place low odds of that happening. Thus, the economic impact of the raid so far is marginal and markets remain calm.
  • June 16, 2025 – While many in Congress fret that the reconciliation bill now before the Senate raises deficits and ultimately leads to economic disaster if left unchecked in the future, the focus will be on now. That means lower taxes, faster growth and higher earnings in the short-run as long as the bond market doesn’t rebel. Only a true crisis is likely to elicit fiscal austerity. That won’t happen before the current bill, slightly modified, will pass. Wall Street will embrace it because it always embraces stimulative policy, at least until the side effects kick in. Markets are starting to replace complacency with euphoria. That can last many months. But as we learned from the SPAC debacle in 2021, it won’t last forever.
  • June 12, 2025 – Despite a resilient stock market grinding near all-time highs, a fresh wave of geopolitical risk and fiscal policy uncertainty is creating headwinds. A chorus of Wall Street’s most respected investors is sounding the alarm, warning of dangerously high valuations, an unsustainable U.S. debt burden, and the rising probability of an economic slowdown.
  • June 9, 2025 – This week the focus will be on trade negotiations with China and the progress getting the Big Beautiful Bill on the President’s desk. The former is likely to be complicated and slow moving, but any movement in the right direction should keep investors happy. As for the legislation, it will be inflationary and worrisome long-term if one focuses on future debt service requirements. But this market has heard wolf cried too often to care until either interest rates spike higher or the dollar comes under renewed attack.
  • June 5, 2025 – The Old Faithful Geyser in Yellowstone National Park erupts regularly, but not on an exact schedule. Considering the most recent 100 eruptions, the average time between eruptions ranged from 55 minutes to over 2 hours. Likewise, inflation and employment data can cause ebbs and flows in the bond market, creating volatility for investors. Economic data are currently coming in mixed, mostly related to changing tariff policy. Meanwhile, equity markets are slightly positive so far this year, and only off about 3% from all-time highs.
  • June 2, 2025 – Just as the Soviets laid down the gauntlet in the 1960s starting the space race, China has caught up to us technologically in many ways and is still gaining ground in others. For the U.S. to maintain its leadership requires coordinated efforts from both the private and public sectors. Trying to erect barriers is not a winning formula. Rather, properly focusing resources to support the most strategic initiatives makes sense.
  • May 30, 2025 – Amidst a volatile market, significant economic risks such as high interest rates and trade policy are creating a tense environment where stock market gains may be capped. Key sectors, like housing, are already showing signs of strain from elevated rates, while the bond market remains turbulent. Therefore, a diversified and defensive investment strategy is recommended, emphasizing fundamental analysis and valuation discipline for stocks while holding high-quality bonds to navigate the expected volatility.
  • May 27, 2025 – The House has passed Trump’s big beautiful bill and moved it on to the Senate. It’s a budget buster that offers something for all but will expand deficits meaningfully. It’s a bit of a mess that can be fixed if the Senate has the backbone to fix it. Wall Street will be watching, especially bond investors.

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