U.S. Downgrade, AI Surge, and Retail Resilience

Analyst Weekly, May 19, 2025

Global markets are flashing signals that matter for the road ahead, and savvy investors are paying attention. From AI expansion into new regions to retail turning profitable and governments recalibrating trade and taxes, the next phase of the cycle is taking shape. Here’s what’s moving markets and what it means for your portfolio.

Uncle Sam’s Not AAA Any More

Moody’s just pulled the US’s final AAA rating, citing ballooning debt, a $2T+ annual deficit, and political gridlock over taxes and spending. But for many in the market, this was already priced in. The 27-year era of fiscal stimulus ended in 2023 and net interest payments have quietly climbed to 18% of tax revenues, far above historic norms. It is clear that tariffs and paying for tax cut extensions are signs that a new period of austerity has arrived.

The irony? Moody’s might be late to the party. In 2011, S&P downgraded the U.S. after Congress passed $2T in cuts. Bond yields fell. Now, Moody’s is flagging deficits tied to tax cut extensions that haven’t even passed while ignoring tariffs, which function as a $2T consumption tax that actually supports revenue. Tariffs hurt growth, but they help the Treasury: a trade-off the market seems to understand better than the rating agencies. Investor Takeaway: The downgrade reflects what markets already know: we’re in a new fiscal regime defined by austerity via tariffs and caps, not stimulus. Keep an eye on Treasury yields and fiscal negotiations but don’t overreact to the downgrade itself. History shows these calls often lag the fundamentals.

Britain’s Big Beat, Meet Big Breach

The UK kicked off 2025 with a bang: GDP rose 0.7% q/q in Q1, topping forecasts and leading the G7. Strong consumer spending and industrial output did the heavy lifting, giving the government a narrative win. While questions remain around fresh tax increases and trade tensions, the growth beat shows the UK economy still has momentum. In other words, Britain’s economy is winning the sprint, but the marathon has obstacles ahead (trade policy being a key one).

Meanwhile, a very 2025 problem hit a British retail icon. Marks & Spencer (MKS.L) was sidelined by a massive cyberattack that knocked out its website and app for over three weeks. The ransomware-style attack left M&S unable to take online orders since late April, with some store shelves even running low as systems went offline. The retailer confirmed hackers stole certain customer data (thankfully no payment info) and disruption has cost it an estimated £30+ million in profit so far. M&S shares have tumbled about 14% since the Easter weekend when the cyber woes began. The company is working to get operations back to normal, but the incident is a blunt reminder that even century-old brands need cutting-edge cyber defenses. Investor Takeaway: A strong economy doesn’t immunize companies from tech threats: investors in the UK market must balance the encouraging big picture (robust GDP, improving sentiment) with due diligence on company-specific vulnerabilities (like cybersecurity resilience). Keep an eye on trade policy moves too, as any post-truce tariff flare-up could quickly turn Britain’s surprise boom into a bust.

Source: Bloomberg, As of May 18, 2025.

Desert Deals Fuel AI Chip Rally

It was raining oil money on AI stocks last week. Nvidia and friends saw a mid-week surge after a high-profile pit stop in the Middle East. New partnerships were announced to supply chips for a Saudi AI initiative, sparking a rally across AI and data-center names. The market certainly liked the sound of “AI oasis”: Nvidia stock jumped about 4%, AMD leapt 5%+, and server-maker Supermicro (SMCI) rocketed for a second straight day. Even previously controversial names joined the party: Palantir hit a record high and Tesla climbed 3%. Analysts noted these petro-dollar fueled deals could offset US-China export curbs that had threatened chipmakers’ sales. (Recall that Nvidia recently warned of a $5.5 billion hit from new chip export limits to China.) Investor Takeaway: The AI gold rush is going global. Deep-pocketed newcomers are investing heavily in tech infrastructure, a bullish sign for chip and cloud vendors powering the AI boom. For investors, it means the AI rally has broadened beyond Silicon Valley, potentially extending the runway for the sector’s growth even as US-China tensions simmer.

Walmart Finally Cashes In Online

America’s biggest retailer just hit a milestone that even Amazon would applaud: Walmart’s e-commerce arm turned profitable. In its latest earnings, Walmart revealed that US online sales surged 21% last quarter and, for the first time ever, the digital business made money. Decades of heavy investment in fulfillment and delivery are finally paying off – literally. Same-store sales were strong (+4.5%), but the real star was the clicks over the bricks. The company has been playing online catch-up with Amazon for years, and now those efforts (like curbside pickup and marketplace expansion) are translating into black ink. But the world’s largest retailer also sent a warning shot: tariff-driven price hikes are coming. CFO John Rainey said shoppers will start seeing increases in May, as supply chain volatility and “a lack of clarity” on trade policy make near-term planning tough. Investor Takeaway: Walmart is doing what few retailers can, balancing offense and defense with precision. It’s gaining share, investing in long-term growth, while at the same time managing near-term headwinds better than peers like Target. The company is clearly navigating tariffs better than most (through sourcing diversification and inventory flexibility). The stock isn’t cheap, but that’s the cost of quality in today’s retail. Walmart remains one of the few names in retail that can navigate uncertainty and keep growing.

Copper: Electrified, Scarce, and (Slightly) Tariffed

Copper just got hotter. Structurally, demand is being supercharged by everything from EVs and solar panels to AI data centers (yes, servers need serious power). China, which buys over half the world’s copper, has rolled out infrastructure-heavy stimulus for 2025, adding more fuel to the fire. But supply? That’s where it gets tight. Chile and Peru (which mine 40% of global copper) are battling falling ore quality, political disruptions, and water shortages – a mix that’s slowing down production just as demand ramps.

Then came a curveball: the US is potentially (not yet imposed) implementing a 25% tariff on copper imports, spooking traders and temporarily flooding inventories, which sent prices tumbling. A 90-day truce with China has helped stabilize sentiment, but the market’s still edgy. Investor Takeaway: For investors, the setup remains complex: structurally bullish, but tactically volatile. UK-based exposure ranges from direct copper exposures like WisdomTree Copper, to diversified miners (ANTO.L, GLEN.L, RIO.L) and broader natural resources funds (BRWM). Each brings different sensitivities to copper price shifts and to the policy risks now baked into the trade.

Source: Bloomberg, data as of May 18, 2025.

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