The Week in Charts (06/06/25)
The most important charts and themes in markets and investing, including:
00:00 Intro
00:19 Topics
01:30 The Biggest Story in Markets This Year
06:10 Imports Plunge After Massive Front-Running
09:56 Recession Odds Continue to Fall
13:23 Don't Expect a Rate Cut This Month
17:56 Labor Market Loosening
20:11 A Little Pain Now vs. A Lot of Pain Later
26:11 Solution to the Problem = Cause of the Problem
29:26 Strong Wage Growth
Video
Blog

The inimitable Jack Hough discusses small-cap stocks in his column this week.
"It’s an asset class so perennially disappointing that mutual fund reports should come with sympathy cards.
The Russell 2000 small-cap index should be renamed the Don’t Do It.
I’d rather diversify into betting pickleball on FanDuel."
On a more serious note...
Valuations are the strongest predictors of small-cap returns.
Free cash flow and dividends are better predictors of small-cap performance than earnings growth rates.
Historically, small-caps have outperformed during episodes of stagflation.
More than a third of companies in the Russell 2000 are unprofitable
while the tally for S&P SmallCap 600 companies is only 9%.
Over the past decade, investors made 108% in the Vanguard S&P Small-Cap 600 ETf
vs. 90% in the iShares Russell 2000 ETf and 236% in the SPDR S&P 500 ETf.
"BofA takes all of this to mean that small-cap quality has bottomed
and begun to improve, and that AI can pay off for small companies, too.
In the debate between 'small-caps are due' and 'small-caps are dead,'
the bank reckons the truth is somewhere in the middle,
and that small-caps are a good diversifier, with better stock-picking opportunities than large-caps."
The author mentions several small-cap funds and individual stocks to consider.
https://www.msn.com/en-us/money/topstocks/small-cap-stocks-are-underloved-why-their-time-may-be-coming/ar-AA1GewXj

"Knowledge of DIY for whatever may prove to be a wonderful source of money (money not spent, eh?)"
For sure. Being able to DIY in my younger years has been a major factor in accumulating enough to be able to pay others now that I''m 85. I do have to say that I find it very painful though, to pay obscene amounts to have stuff done that I used to be able to do for free. G'rrrr...

SSGA website links for ALLW prospectus don't work for me. So, I found those from Edgar/SEC.
Summary Prospectus https://www.sec.gov/Archives/edgar/data/1516212/000119312525045861/d872457d497k.htm
Prospectus https://www.sec.gov/ix?doc=/Archives/edgar/data/1516212/000119312525045857/d921460d485bpos.htm
Prospectus is LONG because it's followed by SAI.
Pg 2:
"...The Fund may obtain exposure to equity and fixed securities either directly or indirectly through derivative instruments (primarily futures contracts, forwards, currency forwards, swaps and total return swaps) and through exchange traded products (“ETPs”). The Fund's investments in derivatives will create leverage, which may be substantial and may magnify the effect of any increase or decrease in the value of the Fund's portfolio holdings...
...The model portfolio typically targets an annualized volatility level for the portfolio ranging between 10%-12%..."
Pg 10: "...Borrowing Money. The Fund may borrow money from a bank as permitted by the Investment Company Act of 1940, as amended (“1940 Act”), or other governing statute, by the rules thereunder, or by the U.S. Securities and Exchange Commission (“SEC”) or other regulatory agency with authority over the Fund, but only for temporary or emergency purposes. The 1940 Act presently allows the Fund to borrow from any bank (including pledging, mortgaging or hypothecating assets) in an amount up to 33 1/3% of its total assets (not including temporary borrowings not in excess of 5% of its total assets)..."

I have always thought that if the % return on debt, either by increasing GDP, national income, etc was greater than the interest rate, debt made some sense. We are only having this conversation because interest rates have increased, (and for some reason nobody floated 30 Yr Treasuries when interest rates were very low).
Both parties are at fault, but GOP more than Dems.
https://www.investopedia.com/democrats-vs-republicans-who-had-more-national-debt-8738104
I believed Reagan when in the 1980s the GOP defended the dramatic debt increases then as an effort to "kill the beast" ( Government).
Rather than return tax rates to anything approaching their previous averages, and support the IRS in collecting what is legally owed, the GOP believes it can "cut" it's way out, by cutting very popular programs and taxes.
In addition to their insanity of gutting the IRS, they want to spend $45 Billion on ICE ( aiming to eliminate $100 Billion in tax revenues that immigrants pay), but only $27 Billion on the NIH which increases productivity by adding years to lives.
I suspect we may find out sooner than later how much debt is too much. Certainly, our reputation as a reliable international partner is in shambles and will decrease foreign interest in Treasuries

'Speculation has persisted that China did not, in fact, “ignore” the Trump tariffs but instead dumped substantial quantities of its US debt holdings. “China may be selling Treasuries in retaliation,” wrote Ataru Okumura, a senior interest-rate strategist at SMBC Nikko Securities in Tokyo, in a note to clients, as reported by Bloomberg on April 11. If so, China has an incentive to show “it won’t hesitate to cause turmoil in the global financial market in order to improve its negotiating power against the US”.'
https://internationalbanker.com/finance/is-china-engaging-in-large-scale-dumping-of-us-treasury-securities/
I have also read that China selling as little as 10% of the UST it holds would be a significant circumstance.

China held $784.3 billion and $765.4 billion of Treasuries at the end of Feb. 2025 and Mar. 2025 respectively.
The value of China's Treasury holdings decreased by $18.9 billion during this period.
I don't know what has transpired since the end of Q1 2025.

The top 5 foreign holders of U.S. Treasury securities at the end of Q1 2025 are listed below.
Japan__$1.13 trillion
UK__$779.3 billion
China__$765.4 billion
Cayman Islands__$455.3 billion
Canada__$426.2 billion
I've recently read that U.S. Treasuries have lost their appeal to the Japanese
mainly because of rising costs associated with hedging the weaker USD.
https://ticdata.treasury.gov/resource-center/data-chart-center/tic/Documents/slt_table5.html

I agree with @bee about aspects of the linked book and some of the brief descriptions. There is nothing wrong with prudence in financial matters, and this doesn't necessarily equal to someone being a miser and sad about the their choices.
One may readily discover that aside from the aspects of compounding investments to the positive; that the opposite exists for many people with the compounding of debt to the negative side of personal finance. Tis the same principle.
Prudence and how to create a household budget also allows for a positive learning curve.
Also fully agree with @DrVenture . Knowledge of DIY for whatever may prove to be a wonderful source of money (money not spent, eh?).
The Millionaire Next Door book
--- The book....its not always one's income, but how one's income is spent.
We've presented this book several times over the years as part of a wedding gift.
Remain curious,
Catch

Many other sites also had reported possible changes in SP500 on 6/6/25, 5:15 PM ET. I was watching too. But S&P Announcement website went down/crashed. Some blamed the overload on the crypto crowd as Robinhood/HOOD was a potential candidate (a huge news for them after Coinbase/COIN had joined SP500).
When the S&P site was back up a few hours later, it just posted that there will be no changes to SP500 constituents.
I almost posted it as "The Most Anticipated No-News of the Day".

@davidrmoran
My understanding is the federal government has run a surplus only four times
within the last 50 years and the latest surplus was in 2001.
Please share any additional pertinent information you may have.

After the following article was published, S&P Dow Jones Indices decided not to make
any S&P 500 index changes during scheduled quarterly rebalancing in June.
https://www.msn.com/en-us/money/topstocks/robinhood-applovin-and-more-stocks-that-could-join-the-s-p-500-today/ar-AA1G5EuX

At least the myth that one party is fiscally responsible can finally be set to rest. Yep, both parties have had a hand in it. We did have a balanced budget in Clinton's time. Then GW tossed it and went on to double the debt during his term. The worst? Reagan. He tripled the national debt in his 8 years.
But, "the other guy did it too" isn't very comforting. Obviously, deficit reduction isn't going to happen in 2025. Even with a $300 billion dollar new tax. That expectation is long gone, along with Elon.

No need to predict anything, the 2025 GDP numbers will tell the tale. Way too early to assess the impacts of the many substantial changes. The data will reveal all, everything from trade deficits to budget deficits.

- Trying to get ahead by cutting down on expenses is a loser’s game

Trying is one thing... succeeding is a other!
I have continually lowered my expenses in retirement by having the time to pursue cost saving incentives that I had little time to chase while working.
Some examples:
- Homesteading property taxes
- Playing the internet/cable provider game
- Understanding ACA/HSA insurance incentives
- Learning & understanding tax code
- 1099E - rental income
- 1099C - Self Employment income and related deductions (HSA/Insurance premiums/TIRA)
- Traveling at low cost times

- A dwelling under 1250 sq. feet represents a meager existence / lack of success in life
- Driving a 10-15 year old (rusty) vehicle also represents a lack of success in life

Umm... no, downsizing your home and extending your vehicle's longevity are two great ways to lower expenses.

Diversifying across both asset classes really pay off this year. It is the uncertainty that magnified the divergent, and the US vs developed market index is over 15 % difference! Fact is the dollar fell over 9% since last December and one to examine why. If American Exceptionalism is alive and well, where is it now? Think there are more compelling opportunities elsewhere.

As I said elsewhere, it's getting to the point where we're not going to be able to trust economic data released by the US government -- either due to the effects of 'DOGE' and the blind downsizing of government offices in recent months or it might get influenced/interfered with by political appointees who don't want the reported numbers/data/analysis to present a contrary statement against the desired political narrative of Emperor Hirocheeto and his political hacks.

https://www.politico.com/news/2025/06/04/trump-officials-farm-product-trade-deficit-forecast-00382549
"Trump administration officials delayed and redacted a government forecast because it predicts an increase in the nation’s trade deficit in farm goods later this year."

Life lived in a vacuum.

A vacuum is when hundreds of posts and media publications called for higher inflation in the last 4-5 months, and...the results are the opposite.
We are getting into politics. I will stay out now.

Kent Smetters from The Penn Wharton Budget Model participated in this WSJ video.
He states:
"If the publicly held debt goes roughly above 175% of GDP things get pretty hard at that point
and 200% is really the drop dead limit. And the reason why is once you hit that limit
you couldn't possibly raise taxes enough at that point to meet the interest payments."
I don't know if Mr. Smetters' analysis is correct but hopefully debt/GDP will not breach the 175% threshold!
Our national debt was 124% of GDP as of Q4 2024...

Foreigners hold approximately 25% of Treasuries and also lend significant amounts to U.S. corporations.
Treasuries are now less attractive to some of these entities due to the weaker USD and rising hedging costs.
https://www.msn.com/en-us/money/markets/global-investors-have-a-new-reason-to-pull-back-from-us-debt/ar-AA1G40Qe

Interesting take on money. I’ve enjoyed the Audible edition for late night listening - a habit that leads to hearing different parts in bits and pieces, not necessarily sequential. The style is “in-your-face” (somewhat arrogant sounding) perhaps heightened in the Audible edition by a different narrator than the author.
It’s a book more about attitude than investing skill or knowledge. If you’re looking for how to invest, this isn’t the right book for you. I don’t necessarily agree with all of Dillian’s assertions (Some appear even clownish). But it is a refreshing different take on money.
Some assertions (as interpreted / rephrased by me)
- The only two sources of financial stress are risk and debt.
- A home is not an investment.
- Trying to get ahead by cutting down on expenses is a loser’s game.
- Increasing income is the key to financial happiness.
- A dwelling under 1250 sq. feet represents a meager existence / lack of success in life
- Driving a 10-15 year old (rusty) vehicle also represents a lack of success in life
- Never finance a new vehicle. Always pay cash.
- Don’t skimp on insurance.
- Always give large outsized tips for services well rendered.
Like I said, the style is confrontational and I do not necessarily agree with all the assertions. But if you’re looking for something that challenges some commonly held notions about money, I recommend it.
Review of Jared Dillian’s “No Worries”
(I haven’t researched the author. He claims to be a highly successful self-made millionaire of humble origin.)
-
Edit (6/15/25) The author completely contradicts himself near the end of the book where he claims a home is “absolutely” an investment - one of the best you can make!
In another late chapter he recommends buying only Toyota autos because they last such a long time. Made me feel smarter as I recently purchased my first Toyota. Better last a long time. :)
Near the end he reveals his 5 asset portfolio for a complete “set it and forget it” approach:
20% cash
20% real estate (apparently including home)
20% gold
20% stocks
20% bonds
It’s somewhat similar to PRPFX I’d say. I have no intention of using his approach.
One interesting comment by Dillian along with the portfolio is that he thinks commodities are a poor investment because with increasing technology they become cheaper and cheaper to produce. Cites agriculture and oil as two examples. You be the judge.