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- Moody's downgrade is nothing but a take-profit opportunity.
Moody's downgrade is nothing but a take-profit opportunity.
Daily Update on SPY, QQQ, TLT, USO, BTC, COIN, Mag-7, Gold, PLTR
Yimin Xu
May 19, 2025
Hi YXI friends,
Moody’s downgrade saw equity futures retreating before the market open today.
The rationale for the downgrade was that “we expect federal deficits to widen, reaching nearly 9% of GDP by 2035, up from 6.4% in 2024, driven mainly by increased interest payments on debt, rising entitlement spending, and relatively low revenue generation. We anticipate that the federal debt burden will rise to about 134% of GDP by 2035, compared to 98% in 2024.”
The reality is that other rating agencies had already downgraded the US federal debt a long time before Moody’s. Most banks use their own internal ratings to model their investment risks. Aaa and Aa1 ratings fall into the same risk bracket anyway. And investors have already been demanding higher risk premium in holding long-duration US Treasuries, regardless of the opinions of the rating agencies.
To summarise, this downgrade is immaterial to our medium-long market expectations.
However, for today, it is a nice headline to prompt investors bank their profits from the recent straight-up rally.
For those looking for our machine learning Model Signals directly, you can find them in our dedicated morning note on SPY, QQQ, BTC, TSLA (free), PLTR (free), AAPL, AMZN, MSFT, and TLT. We also show them in the main content below.
Let’s dive in!
Table of Contents
DISCLAIMER: This newsletter is strictly educational. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.
1. YXI Daily Dashboard
Overnight Observations
Truflation’s inflation readings moved up again to 1.99%. It’s been on a straight-up trajectory since beginning of May from sub-1.4% (see chart below)
Risk assets remained bid on Friday, while Gold retreated.
Moody’s downgrade has driven yields higher and equity futures lower on Monday before the NY market open.
Truflation inflation reading YoY
SPY, QQQ, SPDW
The primary expectations are inked in black. The alternative expectations are inked in red where applicable.
SPY enjoyed a stellar week, finishing Friday up over 5% on the week. Our systematic YXI Signals were risk on the whole time to capture all of the gains.
Today, investors are probably looking to bank some profits from a relentless 3-week rally that caught nearly everyone (apart from us and Tom Lee) by surprise.
If you look at the volume profile in the current price region, there is still a lot of digestion of the break-even sellers who bought in late-February.
However, I do not see a material pullback (i.e. 6-10%) until we reach $609.
QQQ is digesting the selling pressure from the late-February buyers today. This is especially as QQQ enters the overbought territory in the RSI.
I see QQQ consolidating and still push for $527+ next, before a material pullback.
SPDW (ex-US Developed World ETF) is moving towards the upper end of the channel. I would expect some resistance when it moves into the $40-41.
SPY/ SPDW (https://www.tradingview.com/x/gGD5USNS/)
What’s interesting to me is this SPY / SPDW ratio, signalling the investor sentiment towards US vs ex-US (developed world) equities. There is a long-term upward trend in the relative performance of US vs ex-US.
More importantly, as the SPY/ SPDR ratio hits the lower trend line, SPY tends to start outperforming SPDW.
FOMC Projections
We use the Fed Funds futures market to understand the market expectations of future FOMC interest rate decisions.
FOMC Date | Before Meeting | Post Meeting | Hike/ Cut in % |
|---|---|---|---|
06/11/25 | 4.33 | 4.31 | -0.02 |
07/30/25 | 4.31 | 4.21 | -0.1 |
09/17/25 | 4.21 | 4.11 | -0.1 |
11/05/25 | 4.11 | 3.96 | -0.15 |
12/17/25 | 3.96 | 3.81 | -0.15 |
01/28/26 | 3.81 | 3.71 | -0.1 |
03/18/26 | 3.71 | 3.61 | -0.1 |
05/06/26 | 3.61 | 3.51 | -0.1 |
The market continues to price in 3 cuts with a small chance of a 4th cut in the next 12 months.
3-month SOFR Futures Yields
2. Summary Of Today’s YXI Signals
SPY, QQQ, BTC, TLT, AAPL, AMZN, MSFT, META, TSLA, PLTR
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