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Winners and Losers for the Week of May 19–May 23, 2025
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During the week of May 19–May 23, 2025, the best-performing asset class was gold, with the iShares Gold Trust ETF (ticker: IAU) up 5.3% (see Table 1). Growing U.S. debt and high interest rates have made gold an attractive hedge against downside risk in both equities and bonds. Traditionally, long-term U.S. Treasuries have been viewed as a recession hedge. However, the increasing federal deficit and inflationary risk make long-term Treasuries riskier. Investors are demanding higher interest rates to compensate for growing U.S. debt and the rising cost of refinancing for the Treasury Department.
The second-best performing asset class was Bitcoin. The iShares Bitcoin ETF (ticker: IBIT) rose 4.4%, supported by a weaker U.S. dollar and growing trade tensions, which have boosted Bitcoin’s appeal as a potential alternative currency.
European equities were the third-best performing asset class, with the MSCI Europe Index up 1.2%. The European Central Bank has gradually lowered interest rates from 4% to 2.25% over the past 18 months, with European countries aiming to stimulate economic growth. Additionally, trade tensions between the U.S. and other nations could create new opportunities for European economies.
The biggest loser of the week was the Russell 2000 Index, which tracks small-cap companies with market capitalizations between $300 million and $2 billion. The ETF (ticker: IWM) fell 3.5%. Protectionist trade policies may not be benefiting smaller firms, and economic uncertainty and high interest rates weigh more heavily on them than reduced competition helps. Large-cap stocks also declined: the Total U.S. Market ETF (VTI) dropped 2.6%, the S&P 500 fell 2.5%, and the NASDAQ-100 declined 2.4%.
(Table 1, Winners and Losers for the week May 19 – May 23, 2025)
Long-term U.S. Treasury bonds lost 2% for the week and are down 7% for the second quarter to date. The yield curve is steepening, with long-term yields rising faster than short-term yields (see Table 2). While investors are still comfortable holding short-term U.S. debt earning over 4%, they require higher yields for long-duration debt.
(Table 2, Yield curve weekly changes over the last four weeks)
High interest rates are worsening the federal deficit, as the government continues to run a negative budget. In fiscal year 2024, the government spent $6.75 trillion but collected only $4.92 trillion in revenue, resulting in a $1.83 trillion deficit (Fiscal Data). That means the government spent 37% more than it earned. When spending exceeds revenue, the shortfall adds to national debt, requiring additional borrowing.
As of March 2025, U.S. public debt is 121% of Gross Domestic Product (GDP) (see Chart 1). This rising debt, combined with high interest rates, creates a compounding issue where the government must borrow not only to fund spending but also to cover interest payments. To put it in personal finance terms: imagine someone named John earning $100,000 per year, spending $137,195 annually, and borrowing at 4.5% interest to make up the difference.
(Chart 1, Total Public Debt as Percent of GDP as of March 27, 2025)
President Trump has advocated for Federal Reserve rate cuts to reduce the cost of borrowing. However, investor demand for U.S. debt may be weaker this time due to a downgraded credit rating, rising debt levels, persistent inflation risks, and unpredictable fiscal policy. As a result, alternatives such as gold and foreign markets may appear more attractive to investors.
References:
European Central Bank. https://www.ecb.europa.eu/stats/policy_and_exchange_rates/key_ecb_interest_rates/html/index.en.html
Fiscal Data. https://fiscaldata.treasury.gov/americas-finance-guide/national-deficit/
U.S. Office of Management and Budget and Federal Reserve Bank of St. Louis, Federal Debt: Total Public Debt as Percent of Gross Domestic Product [GFDEGDQ188S], retrieved from FRED, Federal Reserve Bank of St. Louis: https://fred.stlouisfed.org/series/GFDEGDQ188S, May 25, 2025.
Disclosures:
This analysis is based on historical data and forward-looking estimates that may not materialize. This content represents the author’s opinion only and is not guaranteed to be accurate or complete. Please consult a qualified financial advisor before making any investment decisions. Neither ECNFIN.com nor the author assumes liability for any actions taken based on this information. Past performance is not indicative of future results.
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By Ivan Sichkar, CFA, FRM, CFP®
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Enter your email address to follow ECNFIN.com and receive notifications of new articles by email for free. Be the first to read and do not miss future timely research publications.
During the week of May 19–May 23, 2025, the best-performing asset class was gold, with the iShares Gold Trust ETF (ticker: IAU) up 5.3% (see Table 1). Growing U.S. debt and high interest rates have made gold an attractive hedge against downside risk in both equities and bonds. Traditionally, long-term U.S. Treasuries have been viewed as a recession hedge. However, the increasing federal deficit and inflationary risk make long-term Treasuries riskier. Investors are demanding higher interest rates to compensate for growing U.S. debt and the rising cost of refinancing for the Treasury Department.
The second-best performing asset class was Bitcoin. The iShares Bitcoin ETF (ticker: IBIT) rose 4.4%, supported by a weaker U.S. dollar and growing trade tensions, which have boosted Bitcoin’s appeal as a potential alternative currency.
European equities were the third-best performing asset class, with the MSCI Europe Index up 1.2%. The European Central Bank has gradually lowered interest rates from 4% to 2.25% over the past 18 months, with European countries aiming to stimulate economic growth. Additionally, trade tensions between the U.S. and other nations could create new opportunities for European economies.
The biggest loser of the week was the Russell 2000 Index, which tracks small-cap companies with market capitalizations between $300 million and $2 billion. The ETF (ticker: IWM) fell 3.5%. Protectionist trade policies may not be benefiting smaller firms, and economic uncertainty and high interest rates weigh more heavily on them than reduced competition helps. Large-cap stocks also declined: the Total U.S. Market ETF (VTI) dropped 2.6%, the S&P 500 fell 2.5%, and the NASDAQ-100 declined 2.4%.
(Table 1, Winners and Losers for the week May 19 – May 23, 2025)
Long-term U.S. Treasury bonds lost 2% for the week and are down 7% for the second quarter to date. The yield curve is steepening, with long-term yields rising faster than short-term yields (see Table 2). While investors are still comfortable holding short-term U.S. debt earning over 4%, they require higher yields for long-duration debt.
(Table 2, Yield curve weekly changes over the last four weeks)
High interest rates are worsening the federal deficit, as the government continues to run a negative budget. In fiscal year 2024, the government spent $6.75 trillion but collected only $4.92 trillion in revenue, resulting in a $1.83 trillion deficit (Fiscal Data). That means the government spent 37% more than it earned. When spending exceeds revenue, the shortfall adds to national debt, requiring additional borrowing.
As of March 2025, U.S. public debt is 121% of Gross Domestic Product (GDP) (see Chart 1). This rising debt, combined with high interest rates, creates a compounding issue where the government must borrow not only to fund spending but also to cover interest payments. To put it in personal finance terms: imagine someone named John earning $100,000 per year, spending $137,195 annually, and borrowing at 4.5% interest to make up the difference.
(Chart 1, Total Public Debt as Percent of GDP as of March 27, 2025)
President Trump has advocated for Federal Reserve rate cuts to reduce the cost of borrowing. However, investor demand for U.S. debt may be weaker this time due to a downgraded credit rating, rising debt levels, persistent inflation risks, and unpredictable fiscal policy. As a result, alternatives such as gold and foreign markets may appear more attractive to investors.
References:
European Central Bank. https://www.ecb.europa.eu/stats/policy_and_exchange_rates/key_ecb_interest_rates/html/index.en.html
Fiscal Data. https://fiscaldata.treasury.gov/americas-finance-guide/national-deficit/
U.S. Office of Management and Budget and Federal Reserve Bank of St. Louis, Federal Debt: Total Public Debt as Percent of Gross Domestic Product [GFDEGDQ188S], retrieved from FRED, Federal Reserve Bank of St. Louis: https://fred.stlouisfed.org/series/GFDEGDQ188S, May 25, 2025.
Disclosures:
This analysis is based on historical data and forward-looking estimates that may not materialize. This content represents the author’s opinion only and is not guaranteed to be accurate or complete. Please consult a qualified financial advisor before making any investment decisions. Neither ECNFIN.com nor the author assumes liability for any actions taken based on this information. Past performance is not indicative of future results.
Never miss an episode
Subscribe wherever you enjoy podcasts:
Apple
Spotify
Amazon
Our Mailing Address:
ECNFIN
1288 Kapiolani Blvd Apt 4003, Honolulu, HI 96814
Our Phone:
+1 720-593-1135
Our Fax:
+1 720-790-7606