Moody’s Downgrade Hits After Hours: Will Middle East Deals Save the Rally?

Moody’s just downgraded the U.S. credit rating — after hours, ahead of tense budget talks. Markets are wobbling, but Trump’s whirlwind Middle East tour secured over $2 trillion in deals.

Are we headed for new all-time highs — or is the rally built on borrowed time and borrowed money?

📉 Credit risk is rising
🌍 Geopolitics are shifting
📈 Markets are still climbing

🎧 Tune in as David Nelson breaks down the risks, the rally, and what it all means for your portfolio.

Disclosure: "At the time of this article I currently hold shares in some of the companies mentioned as part of investment portfolios in funds I manage for Belpointe. Additionally, I may discuss other securities that are under consideration for future investment; however, discussing these securities is not a recommendation to buy, sell, or hold. My mention of these securities reflects my personal opinion and analysis at this moment and may change without notice. Please remember that all investments involve risks, including the possible loss of principal."

Transcript

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Before we get started, I'm going to cut in with this breaking news story. It is Friday after the close and I'm working on this recording and it just popped up on my screen. CNBC is reporting that Moody's has downgraded the United States credit rating on increases in government debt. This is obviously a breaking story and it's going to be discussed certainly over the weekend. And it's interesting that it comes out now, which with the budget negotiations going on for the moment. Futures are trading modestly lower on this news, at least so far. I'll be working on this over the weekend and I'll have something something to you in my next post. All right. Let's get back to the show. U.S. stocks are now 23% off the lows and the bull bear debate is getting pretty loud. It is hard to believe, but it took only three trading days to fall 15% to the April 7th intraday low following the Liberation Day kickoff. And here we are a little more than a month later. And not only are we above those levels, we are less than 4% from breaking out to an all time high. Make no mistake, Trump easing trade tensions with China last weekend and a whirlwind tour to the Middle East. Securing North of 2 trillion in capital. Coming to the United States goes a long way toward improving sentiment. Nevertheless, the debate rages on. On one side of the debate, you have those who believe this explosion off the bottom is nothing more than a bear market rally. And on the other side, bulls are saying the next leg of the bull market has already started. My favorite quote comes from hedge fund guru Dan Niles. I've followed Dan's career since we were both at Lehman Brothers. Here's what he said. The great thing about expecting a bear market rally or the start of the next bull market is the investment positioning is no different. Shorts are covered and longs are added in your most favorite names. He stayed on right now. I haven't gone so far as to say that we've started the next leg of the bull market, but I am on record saying we've seen the lows for this cycle. It would take something extraordinary to breach the April 7th bottom any time within the next 90 days to six months. The question today is how do you position risk capital now? Where are the opportunities? And even more important, where should you take profits or cut losses? Welcome to the Money Runner. I'm David Nelson and this. I love starting off the show with charts. It gives us a picture of what's taking place in the market and sometimes it gives you an indication of where things are headed. This first one I've been showing for the last few weeks here. It's a zoom in shot of the S&P 500. I've got that red line right there. That's the Liberation Day line that goes to April 2nd on the day that Trump announced his basic tariff policy. And, of course, the damage that took place after that. You can see right there at the beginning there, it took only three days to get to the to the intraday lows. Pretty ugly days down about 15% since then. We're up, like I said earlier, 23%, 23%. And now somewhere just north of 3% from the all time high. Pretty incredible run at this point. And it begs the question, where can we go from here? So obviously, a lot is going on here and there's going to be a lot to digest. A lot of this is going to have to be where we where we end up with tariff policy. I'm going to discuss in some of these next charts what earnings are starting to look like. And I think this second chart says a lot because there's good news and bad news. This one right here on the top, you've got the S&P 500 over the last year. The red line is blended EPS, blended EPS is all you're looking six months forward, six months backward. And right now, that number comes out to about $274. And you can see there that and it coincides with the dip in the market. You can see that earnings started to roll over and hence stocks start to roll over because the economic value of the securities is just less. The good news is that is that we seem to have bottomed there and that's kind of the line in the sand for the for the moment, if we can, all that 274 and start to push higher from there in terms of earnings, then stocks should follow. That's the good news. The bad news is the blended p e on the bottom isn't cheap anymore. And we're now back up to about 22 times earnings. Historically. That's a bit rich. So we're going to need something more than just earnings heading higher for markets to go meaningfully above the levels we are right now. This next chart it this is an important one. What you're looking at here is earnings yield. Basically a p e ratio turned upside down. And what you're looking at here, this is real yields, the real earnings yield. And what you're doing here is you're taking the earnings yield of the S&P 500 and you subtract the inflation. And herein lies the problem. Now, this is a five year chart. We have not, after all, all of this this bull market that started in the late stages of 2022, 2023, 2024, bull market years. And now we're back into, you know, green territory here in 2025 of that earnings yield on a real basis has not gone back to the pre-COVID levels. Now, that's in part because, you know, inflation has been stubbornly above where it had been. You can see the earnings yield collapsing as inflation goes up in 2022. And we've recovered, but we never, never really got there. We started to break out at the early, early start of the year. Of course, tariffs and tariff policy and some of the confusion around that have have have, you know, weighed on on this chart. This chart is important because until that earnings yield can start to really break out higher. That's what it's going to take to drive, you know, stocks higher on a sustainable or on a sustainable basis. This chart, this is a problem. You're looking at ten year yields going back about five years. And I can tell you over the last three years, each time ten year yield started to approach 5%. Stocks didn't like it. Think of all the things that the ten year yield triggers. Your mortgage rate is based off of it, credit card rates. So if that rate goes up, that's a challenge. Not just not just, you know, for you to go out and buy a home or to pay off your credit card is this challenge for the overall economy? And it's telling me that those that are going to lend money to the United States want more food on their plate if they're going to extend duration. Right. And that becomes a problem not just for the administration. It becomes a problem for every American. Now, this kind of like Segways into what I wanted to discuss with some of the negotiations that are taking place right now. And part of what the administration has been trying to accomplish over the last few months with their tariff policy, I think all in what we're probably looking at is a baseline tariff on average about 10% high enough to generate some revenue for the country, but not so high that companies have to complete to abandon their current business model and supply chains. Now, I suspect some of the increased costs will be borne by the consumer, but the rest of it will be by the companies themselves because they don't want to lose market share. Unfortunately, and this is a message to the president, this is not going to be enough to completely pay for the extension of the tax cut, including some of the additional items like no tax on tips and a few others. They're going to have to get it from somewhere else. And that's why the current budget process is so critical. And these negotiations are taking place right now, at least as of today, Friday. Some Repub, some Republican holdouts, like Representative Chip Roy of Texas and Ralph Norman of South Carolina and a few others, stopped the Budget Committee from advancing the legislation. So over the weekend, you can bet there'll be a lot of wheeling and dealing if they hope to get this in front of the House for a full vote next week. Representative Chip Roy makes some good points on this about the many more reforms for Medicaid. These reforms, despite what some people are going to tell you, are not going to cut into the benefits for those who need it. He points out that we are spending 620 billion a year on Medicaid compared to 400 billion in 2019. Now, I haven't done the work on this, but he believes we are funding Medicaid seven times higher for the able bodied than for those who actually need it. That's a pretty big accusations are going to have to be at least debated. All right. Stay tuned on this because I suspect we may be hear more on this before the weekend is out. Finally, what should you sell? For starters, anything that blew up, had a bad quarter, got caught in the updraft for the last few weeks. The tide lifted a lot of boats, including some stocks that didn't deserve it. Take the wind. It's a gift. You have a second chance here. Sell the stock if it no longer meets your objective. If you think one of your names is approached, fair value, sell that too. I've done that. I've sold a few names. I took profits in monolithic, monolithic power and BWR. Recently, CrowdStrike happened to catch it just right. Pretty expensive stock had gotten a fair value. Should do the same. Another one we did on Friday and this was not a full sale I we we trimmed the position went from a market we position to something less than that was Amazon on the name a long time fabulous company. All right. So why did I sell it? Well, I trimmed it off on Friday for for for a few reasons. Here. Look, like I said, this is a fabulous company, but it wasn't a great quarter. However, it wasn't anything I heard in the quarter or the commentary from management or even even even all the the noise about tariffs. It wasn't that is what I heard on the Wal-Mart call, believe it or not. All right. Obviously, a competitor. Amazon is the e-commerce powerhouse. Walmart is the brick and mortar store. All right. Well, it's starting to come together here. All right. Walmart has some of the same challenges as Amazon. But for the first time, its online business went profitable there, newbie, remember? And it's exploding hand over fist. It's really growing fast, right? E-commerce at Amazon growing at 22% compared to Amazon at just 6%. Online ads. All right. Grew it over 50%. Now, obviously, from a dollar perspective, Amazon dwarfs it, right. So it's still early in the stages for some of these items. So Walmart, but you can bet if they're doing it this fast, this is a powerful company, they're going to take some more market share here. So I decided to trim back the Amazon position, edit it to Walmart. All right. It's late Friday. I want to get home to my wife, grab some dinner. That's it for this week. Hope you enjoyed the pod. If you want to learn more about yours truly, go to my substack site. dcnelson123@substack.com. I'm David Nelson. And this is the money runner.