(19-23 May 2025)

1. Markets

Fiscal Fissures: When Bond Markets Draw the Line

Credit downgrades and tax bill turmoil test market patience with Washington's spending appetite

Wall Street endured a turbulent week that began with Moody's stunning credit downgrade of the United States and culminated in a dramatic "sell America" moment as fiscal concerns reached a crescendo. The S&P 500 shed 2.7% for the week, falling from 5,964 to 5,803, as investors grappled with the uncomfortable reality that even the world's reserve currency isn't immune to fiscal scrutiny.

The week's narrative arc was both predictable and jarring. Monday's opening bell brought immediate selling pressure following Moody's Friday evening bombshell—downgrading US sovereign debt from AAA to Aa1, citing mounting deficits and political dysfunction. While the outlook was revised to stable, the psychological impact was severe, sending Treasury yields higher and the dollar tumbling to four-week lows.

What began as a typical post-downgrade adjustment quickly morphed into something more concerning as Congress advanced President Trump's tax reconciliation bill. The Congressional Budget Office's estimate that the legislation would add $2.3 trillion to deficits over the next decade sparked genuine fiscal anxiety. Wednesday's disastrous 20-year Treasury auction—featuring a chunky 1.2 basis point tail and weak bid-to-cover—became the market's definitive rejection of Washington's fiscal trajectory.

The bond market's rebellion was swift and merciless. The 10-year Treasury yield spiked from 4.46% to 4.59% before retreating, while the curve steepened dramatically as investors demanded higher compensation for duration risk.

Fed Governor Waller's candid admission that "markets want more fiscal discipline" and his clarification that the Fed "cannot buy bonds in primary auctions" underscored the central bank's unwillingness to monetize fiscal excess.

Yet perhaps most telling was the market's schizophrenic response to the House ultimately passing the tax bill Thursday evening. Initial selling gave way to relief rally as investors embraced a "sell the rumor, buy the fact" mentality—recognizing the Senate still presents significant hurdles for final passage.

President Trump's Friday morning threat of 50% tariffs on the European Union provided the week's final act of drama, briefly sending risk assets tumbling before a late-session recovery. The juxtaposition was stark: markets simultaneously worried about fiscal profligacy while Trump threatened trade actions that could further complicate the economic outlook.

The week's silver lining emerged from surprisingly resilient economic data. The S&P Global Flash PMI jumped to 52.1, with both manufacturing and services components beating expectations. New home sales surged 10.9% in April, while initial jobless claims remained near historical lows. This data cocktail suggested the economy retains underlying strength despite Washington's fiscal theatrics.

For investors, the week crystallized a fundamental tension that will likely define markets for months ahead: can an economy maintain momentum while bond vigilantes circle overhead? The answer may determine whether the current correction represents healthy fiscal accountability or the beginning of a more serious reckoning with America's spending habits.

Few interesting charts from Carson research:

‍

‍

‍

2. Macro Data

‍

Economic Resilience Amid Political Turbulence

PMI Strength Surprises: The S&P Global Flash PMI data provided the week's most encouraging economic signal, with the composite index rising to 52.1 from 50.6. Both manufacturing and services components exceeded expectations, with the latter rebounding sharply from a 17-month low. However, the report carried a notable caveat—much of the improvement reflected companies front-running potential tariff increases, leading to the largest inventory accumulation since records began 18 years ago.
Labor Market Shows Mixed Signals: While initial jobless claims remained historically low at 227k, continued claims jumped to 1.903 million—the highest level since April and above all analyst forecasts. This suggests those losing jobs are struggling to find new employment, potentially signaling softening demand despite headline resilience.

The data paint a picture of an economy maintaining momentum despite elevated uncertainty, though underlying cracks are beginning to show in employment turnover and consumer-facing sectors.

‍

3. Corporate Spotlight

‍

a. Snowflake (SNOW): Innovation Engine Hits High Gear

Snowflake delivered a compelling quarter that demonstrated CEO Sridhar Ramaswamy's transformative impact on the data cloud pioneer. Revenue beat estimates by 3.2% while EBIT crushed expectations by $39 million, as the company's innovation engine accelerated under new leadership.

The standout story was Snowpark's emergence as a primary revenue driver, helping data scientists process unstructured data more efficiently within Snowflake's ecosystem. This product suite, including the popular Notebooks feature, is attracting thousands of users and positioning Snowflake competitively against rivals like Databricks. Disney is using these tools to optimize theme park traffic flow, while Hilton deploys them for customer service predictions.

What impressed most was Snowflake's successful platform consolidation strategy. The company's Connectors product enables seamless integration with third-party services like Google Drive and Slack, while Iceberg Tables support has eliminated storage revenue concerns while enhancing the platform's openness. This interoperability is proving crucial for Agentic AI applications requiring diverse data sources.

With 5,200 customers now using AI and machine learning tools weekly (up from 4,000 quarterly), Snowflake is successfully positioning itself as the platform that makes enterprise data "AI ready." The company raised annual product revenue guidance by 1.1% while maintaining strong margins, though the 157x forward P/E ratio remains elevated despite the operational improvements.

‍

b. Palo Alto Networks (PANW): Platformization Pays Dividends

Palo Alto Networks continued its impressive transformation from point-solution provider to comprehensive cybersecurity platform, completing 90 additional platformizations during the quarter to reach 1,250 of its 5,000 largest customers. This strategic shift is driving remarkable deal sizes, with $5M+ NGS ARR customers rising 41% year-over-year.

The quarter's standout was Prisma Access Browser (PAB), which sold 3 million licenses versus 250k last year—representing 33% of all Prisma Access Platform seats. This explosive growth reflects the product's perfect positioning as browsers become the primary interface for AI and cloud application access. The company's $90 million deal with a global consulting firm, which displaced four point solutions while reducing threat resolution time from days to minutes, exemplifies the platform's value proposition.

XSIAM continues its remarkable trajectory, with trailing 12-month bookings crossing $1 billion just 30 months after launch and ARR growing over 200% year-over-year. As the foundational Security Operations Center platform, XSIAM is becoming indispensable for enterprises seeking consolidated threat management.

While gross margins faced temporary pressure from the Texas manufacturing facility transition, the company expects significant tailwinds as the facility reaches capacity. With AI dramatically accelerating both attack frequency and enterprise security needs, Palo Alto's comprehensive platform approach positions it well for sustained growth, though the 55x forward P/E suggests much optimism is already priced in.

‍

c. Target (TGT): Retail Reality Check

Target delivered a sobering reminder of consumer pressure, missing on earnings, revenue, and same-store sales while providing cautious full-year guidance. The retailer's struggles highlighted the challenging environment facing mass-market retailers as consumers become increasingly price-sensitive amid persistent inflation and potential tariff impacts.

Most concerning was Target's inability to provide clarity on pricing strategy regarding potential tariff impacts, contrasting with Home Depot's firm commitment not to raise prices due to tariffs during the same earnings cycle. This uncertainty reflects the broader retail sector's struggle to balance margin protection with volume preservation in an increasingly cost-conscious environment.

The results underscored how middle-income consumers—Target's core demographic—are bearing the brunt of economic uncertainty. With trade tensions potentially adding further price pressures, Target's performance may foreshadow broader challenges across discretionary retail categories.

‍

d. Home Depot (HD): Resilience Amid Uncertainty

Home Depot provided a stark contrast to Target's struggles, delivering revenue beats while explicitly committing not to raise prices due to tariffs. The home improvement giant's performance demonstrated the defensive characteristics of its category, as housing-related expenditures prove more resilient than general merchandise.

The company's proactive stance on tariff absorption, combined with reaffirmed full-year forecasts, suggests confidence in its competitive positioning and operational efficiency. Home Depot's performance reinforced its status as a defensive growth play in an uncertain macro environment.

‍

4. Other News

Google I/O 2025: AI Leadership on Full Display: Google's annual developer conference showcased the company's comprehensive AI ecosystem, from its industry-leading Gemini models to practical applications across search, productivity, and hardware. The company demonstrated clear model superiority across LMArena benchmarks while processing 480 trillion AI tokens monthly (up 50x year-over-year). Key announcements included Gemini 2.5 Flash with 22% efficiency gains, Project Starline's "Google Beam" 3D video calling, and Android XR operating system for Samsung's upcoming headset. With over 400 million monthly Gemini users and AI Overviews reaching 1.5 billion users, Google positioned itself as the definitive AI platform despite market skepticism about its competitive position.
Amazon's Strategic Wins: Amazon reported no consumer spending impact from trade tensions while revealing that Anthropic's new Claude 4 model was likely built using Amazon's Trainium 4 chips. This development validates Amazon's custom silicon strategy as an alternative to Nvidia's GPUs for AI training. Bill Ackman's Pershing Square initiated a position in Amazon, citing the company's dominant positions in secular growth markets and attractive 25x forward EBIT valuation. Meanwhile, Amazon's Zoox self-driving taxi service expanded to Atlanta, advancing its autonomous vehicle ambitions.
CrowdStrike Leadership Stability: CEO George Kurtz dispelled rumors about rapid share liquidation, clarifying on LinkedIn that recent transactions involved moving stock into family trusts while maintaining his leadership commitment. The cybersecurity leader also joined Nvidia's AI Factory program and hired Snowflake's Chief Communications Officer, reinforcing its position in the AI-driven security landscape.
Latin American Fintech Transitions: Nu Holdings faces a leadership change as COO and President Youssef Lahrech steps down after bringing two decades of Capital One experience to the Brazilian digital bank. He'll remain as board advisor while CEO David Vélez absorbs operational duties. Similarly, MercadoLibre announced that legendary founder Marcos Galperin will transition to Executive Chairman in 2026, with commerce president Ariel Szarfsztejn becoming CEO. Both transitions appear amicable with strong succession planning.
Apple-OpenAI Design Partnership: Former Apple design chief Jony Ive is partnering with OpenAI on consumer AI hardware development, potentially creating new device categories for artificial intelligence applications. This collaboration could reshape the consumer AI landscape by combining Ive's design expertise with OpenAI's model capabilities.
Fed Speaks on Fiscal Discipline: Multiple Fed officials expressed concern about fiscal trajectory, with Governor Waller stating markets "want more fiscal discipline" and Atlanta Fed President Bostic warning that current tariff levels create too much uncertainty for policy changes. The central bank's distance from fiscal policy became a market focus.
UK Inflation Surprise: UK CPI jumped to 3.5% year-over-year from 2.6%, driven by services inflation reaching 5.4%. The hotter-than-expected print briefly boosted sterling before concerns about stagflationary implications took hold.
Trade Signals: Reports emerged of potential progress in Iran-US nuclear talks, while India expects to reach an interim trade agreement with the US before July. These developments provided some optimism that diplomatic solutions remain possible despite escalating trade rhetoric.

Disclaimer: This musing is for informational purposes only and should not be considered as investment advice.

‍

Kristal Advisors

May 26, 2025

Liked it?
Share it with your friends & colleagues!

Market Update

May 26, 2025

[Market Musings] When Bond Markets Draw the Line

Kristal Advisors

Market Update

May 19, 2025

[Market Musings] Trade Truce Takes Root: Markets Surge on US-China Détente

Kristal Advisors

Market Update

May 13, 2025

[Market Musings] Trading Truce: From Tariff Tensions to Teasing Détente

Kristal Advisors

Go to Blog

Ready to start investing?

A fully digital onboarding process that can be completed within 15 minutes.
No more voluminous paperwork and queuing!

Investment Solutions

Invest with us

Company

Resources

+65 92391022

Partnerships

cp@kristal.ai

Customer Support

support@kristal.ai

We are licensed in Singapore, Hong Kong and India. Kristal Advisors (SG) Pte. Ltd. presently operates under the CMS license by the Monetary Authority of Singapore (MAS). Kristal Advisors (HK) Ltd is licensed and regulated by the Securities and Futures Commission (SFC) to carry out Type 4 and Type 9 regulated activities and is not involved in the discretionary management of any collective investment scheme. Kristal Advisors Private Ltd. presently operates as a Registered Investment Advisor under the jurisdiction of the Securities and Exchange Board of India (SEBI).

Read more about our privacy policy - Here

Copyright © 2023 Kristal Advisors (SG) Pte. Ltd. UEN: 201711235E

Investors

Institutional Clients

Partner with us

Wealth-tech Platform

Kristal PaaS