Will a Trump Victory Tank Stocks?

Market Sizzle: Trump Stocks, Bond Chaos, 401(k) Raids, Faster Settlements

Happy Memorial Day! Today, we honor the brave souls who fought for our freedom and remember the sacrifices made for this beautiful country. Let's take a moment to express our gratitude and pray for the families who have lost loved ones.

Enjoy your BBQs and beach days, but never forget—freedom is never free; there's always a price. And even though we observe this day, money never sleeps, and the world is still trading.

Trump Will Tank Markets?

Bill Gross, the "bond king," thinks Trump’s win will hurt markets more than Biden’s.

Trump’s tax cuts and spending plans would make the US debt worse, increasing deficits.

Gross worries about this and says it’s bad for bonds, leading him to declare “total return is dead.” He prefers funds with preferred securities and private credit now.

Gross also warns that stock market gains might slow down, so don’t expect big returns like last year.

He thinks investors should temper their expectations. Big deficits mean poor bond returns, and Gross is now wary of the bond market that made him famous.

He believes both Biden and Trump spend too much, but Trump’s plans are more dangerous.

Bond Market Chaos Ahead

Gross advises putting money in funds with preferred securities and private credit, rather than traditional bonds, to navigate the risky market environment. Investors need to be cautious and realistic about future gains.

More US corporate bonds might soon be junk status. Right now, 5.7% of low-quality bonds are at risk. This number has nearly doubled since the start of the year. Only 5.3% of bonds are likely to be upgraded now, down from 7.9%.

This change shows how tough things are for some companies. Growth is slowing, and borrowing costs are high. Last year, many bonds were upgraded, but this year is different. Net rising stars are only $20 billion, much lower than last year’s $119 billion.

Big companies like Paramount and Charter have lots of debt. If more bonds get downgraded, it could change prices and make borrowing more expensive. But many investors still want to buy bonds. They want good yields before the Federal Reserve cuts interest rates. Analysts think the market can handle these changes for now.

Raiding 401(k)s for Homes?

Many young people plan to use 401(k) funds to buy homes. But experts warn against it. Nearly one-third of aspiring homeowners want to withdraw from their 401(k), says BMO Financial Group. Millennials and Gen Z are the most likely to do this.

Early withdrawals often mean taxes and a 10% penalty. Financial advisor Stacy Francis says, "You really shouldn’t be taking out your retirement for a house." A 401(k) loan is better but still risky. More people are tapping into retirement savings, showing financial stress.

Tom Parrish from BMO says withdrawals can have serious financial consequences. A 30-year-old who leaves $10,000 in their 401(k) could have $77,000 more at retirement.

Borrowing from your 401(k) is less harmful but still tricky. Federal law allows borrowing up to 50% or $50,000, whichever is less. But you must repay it in five years. If you leave your job, repayment could be quicker. Buying a home involves many costs and risks, so think carefully.

Stock Settlement Shake-Up

Tomorrow, US stock settlement time will drop to one day. This new rule, called T+1, aims to reduce trade errors. But it could cause more failed trades, glitches, and costs. Foreign investors hold $27 trillion in US stocks. They must now speed up processes like confirming details and fixing errors.

Firms are preparing for challenges. For example, Citigroup expects more trade fails. Goldman Sachs warns about funding and technology issues. Only 9% of firms think the switch will go smoothly.

Trade failures may rise due to a shorter timeframe. In response, many firms are adding staff, shifting hours, and building new systems. MSCI index rebalances at month-end will test the new system.

Everyone is on high alert to manage the changes and avoid disruptions.

Quick Sizzles

• SoftBank’s $9bn AI Gamble: SoftBank plans to invest nearly $9bn yearly in AI. The Japanese group seeks deals to back Arm, aiming for a major transformation under founder Masayoshi Son.

• US Re-Arms Saudis Amid Tensions: The US is set to lift its ban on offensive arms sales to Saudi Arabia, signaling improving ties as Riyadh seeks to withdraw from Yemen’s conflict.

• Red Sea Chaos Spikes Shipping Costs: Shipping costs rise as businesses rush to ship goods early for the holiday season due to disruptions from Red Sea attacks, impacting global supply chains.

• Hong Kong’s Cash Lure for Mainland Talent: Hong Kong's visa schemes draw mainland Chinese professionals post-pandemic, offering higher salaries, lower taxes, and more freedom amidst China’s economic slowdown.
  

That’s today’s Market Sizzle; good trading, good life!