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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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  • July 21, 2025 – Last week was a quiet week for news. The real heart of earnings season starts to kick in this week. Meanwhile the new crypto legislation signed into law last week is likely to change our lives a lot more than what we will learn from a few earnings reports.
  • July 17, 2025 – Stocks rebounded after President Trump clarified his stance on Federal Reserve Chair Jerome Powell. While consumer and producer price indexes suggest some inflation moderation, particularly in services, certain tariff-exposed goods continue to see price increases. Despite these pressures, the U.S. economy shows underlying strength, exemplified by strong bank earnings and robust consumer spending, though the long-term impact of escalating tariffs remains a key uncertainty.
  • July 14, 2025 – Tariffs and earnings will be in the bullseye of investor focus for the next three weeks. Earnings should be good with the weak dollar giving a boost to reported foreign results. As for tariffs, the announcements are likely to be scarier than the coming reality. But even with more muted final outcomes, the likely overall tariff picture will almost certainly be the most severe since the early 1930s. Tariffs will affect different companies in different ways, a factor likely to lead to an increasing dispersion in stock performance in the months ahead.
  • July 10, 2025 – Professional dodgeball exists in the form of the National Dodgeball League. The NDL was founded in 2004 and is the only professional dodgeball league in the US, sporting 24 professional teams. Investors, corporate management teams and our trading partners may feel like they are playing dodgeball this year due to shifting tariff policies. Market volatility has indeed been above average in the first half of 2025. So far, we have dodged a major economic slowdown, job losses or significant inflationary pressures from tariffs, although the second half of 2025 could witness a bounce in these metrics.
  • July 7, 2025 – Treasury Secretary Bessent talks of his 3-3-3 goals, 3% growth, 3% inflation and a reduction of the deficit-to-GDP ratio from over 6 to just 3. Those are mighty goals. The passage of the reconciliation bill may make short-term movement in the right direction but the ongoing buildup of debt may make reaching those long-term goals difficult.
  • July 3, 2025 – The second quarter of 2025 delivered a stellar performance for U.S. equities, with impressive gains across major indices driven by strong corporate earnings, AI enthusiasm, and eased trade tensions. Despite this rally, the market successfully navigated challenges including early tariff anxieties, signs of consumer stress, and geopolitical uncertainties. Looking ahead, investors are keenly watching the “One Big Beautiful Bill Act” and its potential impact on interest rates, inflation, and corporate profitability.
  • 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.

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