The Monday Morning Playbook: Week of May 19, 2025

Good morning,

After the close on Friday, it was announced that Moody’s had downgraded the US credit rating, the last of the three major credit agencies to do so.

Personally, I think this is a complete non-event. As Cullen Roche succinctly put on Twitter, "If the highest income-generating entity on Earth, that has a printing press, is not AAA, then everything else is something lower."

However, given the current overbought conditions, it could be just the excuse the market is looking for to pull back. After the move was announced Friday, the S&P 500 dropped about 1% in the after-hours.

I’m mostly interested in how real trading goes today, but let’s just say we do correct this week.

The #1 thing I know is that I want to be a buyer of any weakness.

Why?

Because the most important development last week wasn’t the S&P 500 soaring through resistance at 5800. It was the Monday reading in the new high data, which saw 58% of SPX components hit a 1-month high. That’s above the 55% threshold for a deGraaf breadth thrust, which is undefeated 12 months later.

So I don’t “know” what will happen this week. The last time we saw a credit agency downgrade the US debt, it coincided with a routine 10% correction. But we “know”, with as much certainty as we get in this business, that stocks are overwhelmingly likely to be higher 12 months from now, and that should be our focus when allocating portfolios.

This week’s report will review:

• The S&P 500 and deGraaf breadth thrust

• Stock and bond market reactions to the last downgrade in August 2023

• Interest rates across the curve

• ETF movers

• The healthcare disaster

• and more!