Wentz Weekly: “One Big, Beautiful Bill” Passes House, On To Senate

Wentz Weekly Insights
“One Big, Beautiful Bill” Passes House, On To Senate

US stocks ended the week lower, giving back most of the gains seen in the prior week. Small caps, measured by the Russell 2000, underperformed with a 3.47% decline which followed six straight weekly gains. The S&P 500 fell 2.61% while the Nasdaq fell 2.47% as tech was weaker, led by Apple’s 7.6% decline after Trump threatened the company with tariffs if it does not make iPhones in the US.

Receiving more attention was the Treasury markets. Treasuries (debt issued by the US government) were weaker, especially on the longer end of the curve (bonds that have a longer maturity). The 10-year Treasury yield rose 4 basis points to 4.52% while the 30-year bond rose 14 basis points to 5.04%, reaching as high as 5.14% at one point last week for the highest in almost 20 years.

The recent selloff in Treasuries (and rise in yields – bond prices and yields have an inverse relationship) came after credit rating agency Moody’s downgraded US debt from the highest possible credit rating as well as concerns over House Republican’s version of Trump’s “One Big, Beautiful Bill.” Moody’s was the last of the three major credit rating agencies to cut the rating of US debt, but a downgrade however is still noteworthy. The report said the move was due to successive presidents and congressional lawmakers creating a ballooning budget deficit that shows little signs of narrowing. Previous downgrades came from Fitch in 2023 and Standard & Poor’s in 2011.

In the early stages of Trump’s term presidency, he called for Congress to pass many of his priorities in “One Big, Beautiful Bill” rather than trying in many smaller pieces. The proposed reconciliation bill that narrowly passed the House in a 215-214 vote includes many of Trump’s biggest tax priorities including making the 2017 tax cuts permanent that would otherwise expire at the end of the year.

Other tax related policy changes include his campaign promises of eliminating federal taxes on tips and overtime pay and allows individuals to deduct interest on auto loans of US made cars. To gain support of moderate Republicans it raises the SALT (state and local tax) deduction from $10,000 to $40,000. The child tax credit is temporarily raised to $2,500 then reverts back to $2,000 but will increase with inflation. Also, the estate tax exemption is increased and made permanent.

It creates a new government private investment account for every newborn, starting with a $1,000 deposit and allows annual contributions up to $5,000, promoting wealth accumulate at an early age. In addition, it introduces a federal tax credit system to fund $10 billion annually in scholarships, allowing families to choose preferred K-12 education regardless of income.

The bill also addresses energy – accelerating the phaseout of clean energy tax credits, and removes the $7,500 EV tax credit, and phases out other clean energy credits.

One of the more controversial topics was spending cuts on Medicaid and Medicare in effort to cut costs. The bill introduces new work requirements for Medicaid eligibility, reduces federal funding, and bans Medicaid coverage for gender-affirming care.

Despite efforts to cut government spending, the bill is expected to add trillions to the national debt, adding to debt worries and impacting the Treasury market last week. The Congressional Budget Office (CBO) estimates the proposed policies would add $3.8 trillion to the debt, the Committee for a Responsible Budget estimates it will add $3.1 trillion, while the Penn Wharton Budget Model estimates $2.8 trillion.

Now the bill moves to the Senate where Senate leaders have already said it will undergo major changes, though still include areas of the proposal negotiated by House Speaker Johnson. Some fiscal hawks are demanding more significant spending reductions while more moderate conservatives are pushing for softer language on Medicaid changes and to preserve more green energy incentives. The Senate can only lose three Republican votes to still get a party-line passage of the bill. As of now, most see Senator Sand Paul (R – KY) as a hard no and possibly Senator Ron Johnson (R-WI) as a no.

Meanwhile, tariffs are still top of mind for investors. Last week’s biggest tariff headlines included Trump’s plan to impose a 50% tariff on European Union imports because discussions were going nowhere. Treasury Secretary Bessent said he expects several large trade deals to be announced in the coming weeks which kept optimism in the markets.

Fed comments were supportive of the market as well, particularly from Fed Governor Waller. He said if tariffs get close to 10% by early-mid summer, the Fed is in a good position to move with rate cuts in the second half of the year. He did add, however, the reconciliation bill and recent moves in the Treasury market add to worries of fiscal restraint that investors had hoped they would see. Markets are still pricing in about 50 bps (0.50%) worth of rate cuts this year, unchanged from the prior week.

This week, markets will be focused on Nvidia’s earnings report as well as several key retailers. On the economic calendar the focus will be Friday’s PCE inflation report and consumer spending for April. Stocks look like they will open the week on a solid note after a late weekend report said Trump would delay the 50% EU imports.

Recent Economic Data

• Existing Home Sales: The number of existing homes sold per month has been at 75% of the normal (pre-pandemic) level for the past three years, despite the economy having 7 million more jobs since, according to the National Association of Realtors Chief Economist. It adds that pent-up housing demand continues to grow, though is still not yet realized. In April existing home sales fell 0.5% to a seasonally adjusted annualized rate of 4.00 million. Compared to a year ago the sale pace was down 2.0% in April. The median price of an existing home continues to rise though, along with higher mortgage rates, another headwind to affordability. The median price increased 1.8% in April to $414,000. Inventory has improved over the past year or so, rising another 9.0% in April to 1.45 million homes, up 20.8% from a year ago.

• New Home Sales: The number of new home sales in April surprised to the upside, rising 10.9% in the month to a seasonally adjusted annualized rate of 743,000, about 50k above estimates and the fastest increase in over two years. New home sales increased 3.3% from a year ago and were at the fastest sales pace since 2022. Inventory of new homes was relatively unchanged in the month at 504,000 new homes, but up 8.6% from last year, representing a supply of 8.1 months at the current sales rate. The median sales price was $407,200, relatively unchanged from last month and down 2% from last year, but the Census Bureau reported the median square footage of a new home is down over the past couple years.

• Jobless Claims: The number of jobless claims the week ended May 17 was 227,000, down 2k from the prior week with the four-week average at 231,500. The number of continuing claims increased 36k to 1.903 million. The four-week average of continuing claims was up 17k to 1.888 million.

Company News

• US Steel: Nippon Steel said it plans to invest $14 billion, including in a new steel mill, in US Steel if the Trump administration approves its acquisition, according to a Reuters report, in attempt to win the President’s approval. The deal was blocks late in the Biden administration over national security concerns. It was later in the week Trump made a surprise announced of a partnership between US Steel and Nippon Steel that would keep US Steel in the US but provided no specifics and stopped short of endorsing Nippon’s takeover.

• Regeneron Pharmaceuticals: In a surprise move, Regeneron said it has agreed to buy genetic testing company 23andMe, who once had a $5 billion valuation, for $256 million. 23andMe recently filed for bankruptcy and in its proceedings saw scrutiny over the 15 million customers genetics data could be handled unproperly, but Regeneron said it will comply with 23andMe’s privacy policies and applicable laws. It is unclear and was a question by analysts on how the company plans to use the data.

• Tesla: According to an Electrek report, Tesla has begun rolling out a series of discounts and incentives in response to declining sales and concerns around brand reputation. Separately, Tesla CEO Elon Musk said in a Bloomberg News interview he is committed to still leading Tesla five years from now and added he expects to scale back his political spending, sending the stock higher and tempering some Tesla shareholder concerns about his future and political engagement. He added Starlink may go public in the future but he is in no rush to do so, while it could be a way to make more money, could come at the expense of additional overhead and very annoying lawsuits. In a separate interview with CNBC he said the company plans to have robotaxis on the roads of Austin by the end of June, with over 1,000 available within a few months, and in Los Angeles and San Francisco soon after.

• Nike: A report from the Information said in efforts to renew growth and mend ties with key partners, Nike will be bringing items back to Amazon.com online store for the first time since 2019. Nike’s CEO Elliott Hill, who returned from retirement to help revive sales, plan includes improving relationships with key retail partners after its past CEO discontinued some retailer partnerships in effort to boost Nike’s own sales channels and to combat counterfeits, which backfired and led to a sales slump. In addition, Nike said it will be raising prices across its apparel and equipment products, though it is unsure if it is related to tariffs or not.

• Chinese Smartphone Exports: Bloomberg reported Chinese shipments of Apple’s iPhones and other mobile devices to the US fell to their lowest level since 2011 in April, reflecting how the tariff threat has limited the flow of goods between the two largest economies. Smartphone exports fell 72% to just under $700 million in April, well outpacing the overall 21% decline in Chinese exports to the US.

• US Debt Rating Downgrade: Credit rating agency Moody’s Ratings announced before last week it was removing US debt from its highest credit rating, dropping the country debt rating from Aaa to Aa1, adding to worries from bond market vigilantes who want to see a more balanced budget from US leaders. The company said it was due to successive presidents and congressional lawmakers for a ballooning budget deficit that shows little signs of narrowing. It was less of a shock to markets as Moody’s was the last of the three credit agencies to remove the US from the top credit rating. Despite a Fed that is in rate cut mode, Treasury yields have crept higher over debt concerns.

WFG News

529 Day

National 529 Day is recognized on May 29th, and along with graduation season occurring the same time of the year, is a great time to review the benefits and importance of 529 savings plans particularly as college costs rise at a faster pace than overall prices. A 529 plan is a tax advantaged savings account designed to be used for educational expenses. Key features include:

• Easy to open and maintain
• Can invest the funds for long-term growth
• Contributions made with after tax funds
• Tax-deductible contributions
• Tax free growth (if used for qualified expenses)
• Tax-free withdrawals (if used for qualified expenses)
• Anyone can contribute
• If there is leftover 529 money, after the passage of the Secure Act 2.0, individuals can roll over un-used 529 funds from the 529 to a Roth IRA in the name of the beneficiary.

Summer Hours

Please note that beginning Memorial Day (May 26), Wentz Financial Group will be implementing its summer hours. We will be open and available between 8:30am and 4:00pm Monday through Friday from Memorial Day through Labor Day. As always, if you need to speak or meet outside these hours, please contact us and we are happy to set up a time that works.