Outlook A proposed congressional bill being referred to as "One Big Beautiful Bill" is a comprehensive package that combines tax policy changes, spending cuts, and other initiatives. This bill has passed the House Budget Committee edging closer to a floor vote. The bill also led to a downgrade of U.S. Treasury Bonds from AAA to AA+ by Moody's credit rating agency. Moody's points to "large annual fiscal deficits and growing interest costs" as primary risks driving the downgrade.1 Prior to this downgrade, Standard & Poor's and Fitch, the other two largest credit rating agencies, had already lowered U.S. Treasury Bonds from their AAA rating in 2011 and 2023, respectively. In practical terms, the U.S. risk of not repaying principal of bonds they issue remains extremely low in our opinion. Long term risks of higher deficits and interest costs do, however, create significant potential problems to the economy. Higher debt service (government spending on interest and principal) could lead to higher interest rates further exacerbating debt service — spiraling the wrong direction. Higher debt service means less fiscal flexibility as a higher percentage of government spending is focused on debt and less on other programs. Finally, higher interest rates also imply a "crowding out effect" where it becomes more difficult to raise private capital - ultimately stymying economic growth. In any regard, all 3 major rating agencies have fired warning shots on U.S. deficits and debt. Let's hope that rating upgrades are somewhere on the horizon. For investors, we do not see major immediate risks aside from a potential modest rise in yields. . . . U.S. equities rose solidly in the prior week as sentiment lifted sharply on news of positive trade developments. On Monday, the U.S. and China agreed to a 90-day period of reduced tariffs while the two countries work toward a longer-term deal.2 The U.S. administration also announced plans to ease restrictions on artificial-intelligence chips in hopes to enable trade agreements with the U.S. and other countries.3 The recent trade negotiations (even if temporary) helped improve investor sentiment and contributed to a boost in the tech sector. In addition to evolving trade developments, the markets also received its first hard data read regarding the impact of tariffs on inflation. This week’s announcement of the Consumer Price Index (CPI) and Producer Price Index (PPI) – suggest the actual impact of trade policies on inflation and the economy seems to be limited for now, despite soft-data from consumer and business confidence and sentiment surveys demonstrating uncertainty as of late. Headline CPI rose only 0.2% month-over-month, a surprising soft outcome, bringing the annual inflation rate to 2.3%, the lowest since February 2021. Excluding the volatile categories of food and energy, core CPI increased 0.2% for the month, while the annual core inflation rate remained at 2.8%. Both headline and core CPI readings came in lower than forecasted and signaled moderating inflation over a three-month period. Shelter prices drove much of the rise, as it accounts for one-third of the index weighting, and rose 0.3% in April, contributing to over half of the overall move. Other influential components include a rise in energy prices (up 0.7% after declining -2.4% in March), while medical care services also saw a 0.5% rise. Partially offsetting the gains, used vehicle prices saw its second monthly drop (down -0.5%), apparel costs were also down -0.2%, and egg prices tumbled -12.7% (although still up 49.3% from a year ago). Overall, the April CPI figures suggest no severe tariff impact on consumer prices. This may be explained through a buildup of inventory from businesses (as seen in furnishings, chemicals, and autos), or through producers absorbing some costs. Both scenarios provide a buffer to delayed price hikes. Economists suggest that even with the easing of 145% reciprocal tariffs on China, inflation numbers will likely rise again in the coming summer months.4 To what degree and duration remains uncertain. In the prior week, the markets celebrated the positive trades developments and better-than-expected inflation reports leading to outsized gains, pushing the S&P 500 benchmark back into positive territory YTD. The S&P 500 advanced 5.3% (up 1.3% YTD), while the tech-heavy Nasdaq jumped 7.2%, and the blue-chip Dow rose 3.4%. | 
