Week’s Market Performance

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Trump Floats Tax Hike on Wealthy Amid GOP Budget Struggles

In a surprising move amid Republican debates over a massive spending and tax package, former President Donald Trump has suggested increasing taxes on the wealthiest Americans. As reported by NBC, Trump urged House Speaker Mike Johnson to consider raising the top federal income tax rate from 37% back to 39.6% for individuals earning over $2.5 million annually. This proposal aims to preserve Medicaid funding and maintain tax cuts for lower and middle-income Americans. Trump's suggestion also includes closing the carried interest loophole, a tax advantage primarily benefiting private equity and hedge fund managers. Despite Trump's endorsement, this proposal lacks widespread support among Republicans, who are currently wrestling with how to finance their ambitious fiscal plans.

The Tax Cuts and Jobs Act of 2017, enacted during Trump's presidency, temporarily reduced the top income tax rate to 37%, with these cuts set to expire in 2025 unless extended by Congress. Trump expressed his willingness to accept the tax hike, stating on Truth Social that he would support it to benefit lower and middle-income workers, despite advising Republicans against it. The potential tax increase would return the top rate to levels seen between 2013 and 2017, a change that could significantly impact wealthy taxpayers. As Republicans control Congress, they could leverage the reconciliation process to pass the tax modifications with a simple majority, bypassing the Senate filibuster. However, there is internal discord about the bill's contents and financing, with experts like Natasha Sarin from Yale Budget Lab highlighting significant revenue shortfalls. She stressed on CNBC's "Squawk Box" that the proposed measures fall short of generating necessary revenue, underscoring the challenges ahead for lawmakers.

U.S. and China Slash Tariffs in Surprise 90-Day Truce

In a significant development, the United States and China have agreed to a 90-day reduction in tariffs, marking a potential thaw in their prolonged trade war. Announced on May 12, 2025, following negotiations in Geneva, the U.S. will lower tariffs on Chinese imports from 145% to 30%, while China will reduce its tariffs on U.S. goods from 125% to 10%. This agreement also includes China’s suspension of non-tariff retaliatory measures imposed after April 2. U.S. Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng emphasized the establishment of a mechanism for ongoing dialogue, aiming to prevent future escalations. 

The announcement had an immediate positive impact on global markets. The Dow Jones Industrial Average surged by over 1,100 points (2.8%), while the S&P 500 and Nasdaq rose by 3.3% and 4.1%, respectively. International markets mirrored this optimism, with Hong Kong’s Hang Seng Index climbing 3% and Europe’s Stoxx 600 increasing by 1.2%. However, certain U.S. tariffs, particularly those related to autos, steel, aluminum, and fentanyl-related imports, remain in place. While the 90-day truce offers a window for further negotiations, experts caution that the underlying trade tensions have not been fully resolved.

Tax Tango: Trump's Fiscal Jigsaw Puzzle Faces Capitol Hill's Test

As President Donald Trump's tax agenda advances, key dynamics are unfolding in Washington that could shape the fiscal landscape significantly. The House Ways and Means Committee released a preliminary draft of its tax bill, yet the final version may undergo substantial changes before a vote. The Republican majority controls the White House and Congress, enabling them to pass the tax package without Democratic support via "reconciliation," a process bypassing the Senate filibuster. However, this approach must adhere to strict budgetary constraints, presenting challenges given the diverse priorities within the party. Alex Muresianu from the Tax Foundation highlights the difficulty of passing the bill with a narrow Republican majority, as only a few dissenters could derail the process.

Central to Trump's plan is the extension of the 2017 Tax Cuts and Jobs Act (TCJA), which initially reduced tax brackets, increased the standard deduction, and bolstered the child tax credit, among other changes. According to the Tax Foundation, failure to extend TCJA provisions may result in higher taxes for over 60% of taxpayers by 2026. The preliminary House text suggests enhancements like expanded standard deductions and child tax credits, with the latter potentially rising to $2,500 per child from 2025. Despite bipartisan efforts, these proposals face hurdles, as seen in the Senate's previous rejection of a child tax credit expansion. Additionally, Trump's push to amend the $10,000 cap on state and local tax deductions (SALT) is notable, though absent in the initial text. With ongoing negotiations, the final legislation could include Trump's newer tax ideas, such as tax-free tips and overtime, though they require careful structuring to prevent exploitation.

Trump’s Crypto Conflict Complicates Congressional Stablecoin Legislation

In a dramatic turn of events, President Donald Trump's personal cryptocurrency ventures have thwarted the passage of the GENIUS Act, a critical bill aimed at establishing federal regulations for stablecoins. Lawmakers rejected the bill this week, citing potential conflicts of interest, with Sen. Jeff Merkley, D-Ore., describing the situation as a "profoundly corrupt scheme" that threatens national security and public trust, according to CNBC. Stablecoins, which are digital currencies pegged to traditional assets like the U.S. dollar, have been at the center of a heated bipartisan debate. Despite the Republicans' challenging path in Congress due to their slim majority, there was a glimmer of hope for a rare bipartisan victory on this legislation until President Trump's own cryptocurrency, $TRUMP, became a focal point of controversy. The coin’s value surged after promotions offering exclusive experiences with the president, leading some to label it a "pay-for-play scheme."

The GENIUS Act's failure highlights the complications of intertwining personal business with public policy. Senate Democrats, led by Minority Leader Chuck Schumer and Sen. Merkley, introduced the "End Crypto Corruption Act" to prevent officials from issuing digital assets, reflecting growing concerns over potential abuses of power. The bill's defeat, with a Senate vote of 48-49, underscores the divisive nature of Trump's financial entanglements, including ventures like World Liberty Financial and partnerships with foreign entities such as Abu Dhabi-based MGX. Critics argue that these controversies could impede legislative progress and tarnish the U.S. crypto landscape globally. Fintech expert Ryan Gilbert expressed concerns that Trump's personal interests are obstructing necessary reforms, suggesting that such conflicts might deter future investments in the sector. Democrat leaders, including Senators Elizabeth Warren and Kirsten Gillibrand, have called for tighter regulations, emphasizing the importance of consumer protection in the burgeoning stablecoin market. As the crypto industry waits in limbo, the GENIUS Act's failure could signal broader implications for crypto regulation in the U.S., potentially stalling innovation and investment.

Google Battles DOJ in Antitrust Showdown Over Search Monopoly

Google's antitrust search remedies trial concluded its hearings last Friday, with significant revelations about the potential impacts of Department of Justice (DOJ) proposed changes. Liz Reid, head of Google's search division, testified that implementing some of these changes could require redirecting 1,000 to 2,000 employees, representing about 20% of Google's search team. The trial follows a judge's ruling last year deeming Google has maintained an illegal monopoly in internet search. The DOJ's proposed remedies include compelling Google to share search data, such as click data, and ceasing "compelled syndication," a practice that ensures Google's search engine remains the default on many browsers and smartphones. Notably, Google pays Apple billions annually to be the iPhone's default search engine, a profitable arrangement for both companies. Eddy Cue, Apple's SVP of Services, defended this choice, citing Google's superiority as a search engine.

Reid highlighted the massive scale of Google's "Knowledge Graph," which comprises over 500 billion facts, underscoring Google's $20 billion investment in engineering and content acquisition. She argued that sharing this data could pose privacy risks, aligning with Google's stance against the DOJ's proposals. Although the DOJ also suggested Google divest its Chrome browser, this was not included in Reid's impact assessment. Closing arguments are scheduled for May 29th and 30th, with a decision expected in August. Beyond search, Google faces another remedies trial concerning its advertising technology, slated for September 22nd. As the legal battles unfold, the outcomes could reshape Google's operations and its competitive landscape in the tech industry.

Editor’s Chart of the Day

Major Earnings

CyberArk Software, Ltd. (CYBR) - May 13, Before Market Open

• Financial Trends: CYBR has shown steady revenue growth, driven by a shift to a subscription-based model, boosting recurring cash flows, while EPS has risen due to cost-cutting efforts improving operating margins.

• Strategic Initiatives: The company is investing in AI and machine learning to enhance its cybersecurity offerings, focusing on identity security, with recent acquisitions like Venafi and Zilla Security expanding its capabilities.

• Key Metrics: Subscription revenue growth and customer retention rates are critical indicators investors should track for long-term performance.

• Progress: Integration of recent acquisitions is advancing smoothly, with early revenue synergies emerging from broadened product offerings.

• Focus Areas: Look for updates on how acquisitions are impacting revenue and any guidance on subscription growth in the earnings report.

• Risks: Intensifying competition in the cybersecurity sector and potential regulatory changes could challenge market share and profitability.

• Concerns: A potential slowdown in enterprise cybersecurity spending amid economic uncertainty could hinder growth.

• Market Trends: Rising cyber threats and the increasing need for identity security in remote work settings fuel demand, though regulatory scrutiny in tech persists.

Walmart Inc. (WMT) - May 15, Before Market Open

• Financial Trends: WMT’s sales growth is propelled by robust e-commerce performance, with EPS supported by cost-cutting, though operating margins face pressure from rising costs.

• Strategic Initiatives: Investments in supply chain automation and technology aim to improve efficiency, alongside international expansion and digital enhancements like loyalty programs.

• Key Metrics: E-commerce sales growth, same-store sales, and inventory levels are key to evaluating operational strength.

• Progress: E-commerce sales are growing at double-digit rates, and international markets are yielding positive results, particularly in emerging regions.

• Focus Areas: Focus on e-commerce performance versus online retail competitors and updates on cost management strategies in the earnings call.

• Risks: Rising labor costs and potential tariffs could squeeze margins, while supply chain disruptions remain a concern.

• Concerns: Inflation and shifts in consumer spending may weaken discretionary sales, especially in non-essential goods.

• Market Trends: The move toward omnichannel retail and growing consumer emphasis on sustainability align with WMT’s efforts, but economic uncertainty looms.

Take-Two Interactive Software, Inc. (TTWO) - May 15, After Market Close

• Financial Trends: TTWO’s revenue has increased due to strong sales of flagship games, with EPS bolstered by cost efficiencies, though gross margins fluctuate with release schedules.

• Strategic Initiatives: The company is focusing on new game development and expanding online platforms for recurring revenue, supported by partnerships and acquisitions.

• Key Metrics: Sales of major titles, user engagement metrics, and online service revenue are essential for gauging performance.

• Progress: Recent game launches have performed well, and online services are driving higher user engagement and recurring revenue.

• Focus Areas: Watch for updates on game release timelines and future quarter guidance, as delays could affect revenue projections.

• Risks: Game development delays and competition from other entertainment platforms could impede growth.

• Concerns: The gaming industry’s cyclical nature and potential saturation in popular genres may limit sustained revenue gains.

• Market Trends: Growth in mobile gaming, esports, and live services offers opportunities, though shifting consumer preferences pose risks.

Meet Evan Buenger

From a young age, Evan was fascinated by the stock market. At just 11 years old, he received a Wall Street Journal subscription for his birthday, sparking a lifelong passion for investing. Evan spent his formative years studying the strategies and philosophies of legendary investors like Paul Tudor Jones, Stanley Druckenmiller, and George Soros, absorbing their wisdom and developing his own unique approach to the markets.

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