Shutdown and Tariffs, Calmer Bonds, and Digging a Trench

October 12, 2025

THE SHUTDOWN PART DEUX: It is week two, and there is no end to the shutdown in sight. No one has blinked yet. Healthcare funding seems to be the topic that Senators are discussing behind the scenes. This could easily continue through the month of October. So far, markets have been largely unfazed.

NEW TARIFF TALK SINKS MARKETS: The S&P 500 finished the week positive, but barely, after markets decreased on Friday in response to President Trump's talk about tough new tariffs on China. It was an unexpected renewal of the trade war. Despite a good week going into Friday, the S&P lost 2.7% that day and squeezed out a weekly gain.

LONGER-TERM PERFORMANCE: Below are the annualized three-year and five-year numbers for these same indices.

BETTER HOMEBUYING CONDITIONS: According to Intercontinental Exchange, home affordability in the U.S. has hit its best level in 2.5 years due largely to easing mortgage rates. In mid-September, 30-year mortgage rates averaged 6.26% (currently very close to that number, but not lower). The principal and interest payment on an average-priced home has decreased to $2,148, which is about 30% of the median U.S. household income. That is still about 5% higher than the historical average, but lower than the 2023 peak, which saw 35%.

AI IS THIRSTY: We have reported here how the artificial intelligence industry is creating urgent and massive demand for electricity. AI is also thirsty for lots of water. Data centers need massive quantities of water to cool AI servers. As each new iteration of chatbot emerges, more liquid cooling is needed. AI companies have often looked for data center sites in places with low energy costs. Some of these low-energy sites are in drought-prone regions, which is placing stress on local water tables in these regions. Water is often a secondary thought after energy. One example is Newton County, Georgia, where a local homeowner had her well run dry after Meta broke ground on a new $750 million data center 1000 feet from her home. Morgan Stanley forecasts that AI data centers will consume a bit over 1 billion liters of water annually by 2028, or 11 times more than last year's consumption levels. Companies that create innovative solutions in this area are poised to do quite well in the next decade.

DEBT TO GDP RATIO: The ratio of U.S. government debt to the size of its annual GDP was approximately 124% in 2024, and is likely to rise to 125% this year. In the early 2000s, we were all a bit panicked because this ratio had risen above 50%. It rose dramatically after the housing crisis of 2007-2008, eventually hitting 100% by 2019. It rose to 124% in 2020 (remember that year?). Meanwhile, in Europe, their debt issues are increasing as well. Greece remains in the worst spot at 153%. But Greece is improving from its high of 180% in 2022. Bulgaria is only 24%. France is 115%, but it has risen (and is rising) dramatically, which caused Fitch to downgrade its credit rating in September.

THE BOND MARKET IS CALMING DOWN A BIT: As you can see from the graph below, the volatility of the bond market, after climbing in 2022, has been moving into a calmer (below historical average) territory.

SECOND ANNUAL WORK DAY: For the second year in a row, Stonecrop held a work day where we volunteered our time to help restore a home in conjunction with the nonprofit organization Good Works, Inc., which repairs homes for low-income families. We worked on a home that is getting a lot of water coming in, so we dug out around the foundation to parge the concrete and apply a couple of coats of tar. (By the way, I had never heard of the word "parge" before our work day.) We also put up some new soffit. It was great to be able to do something concrete for a neighbor (get it?). Seriously, we loved doing this. It was nice to work together on this project.

Have a great week!

Our purpose is to honor God by helping our clients see the objective, find the path, and navigate past the obstacles to a more prosperous future.

Douglas R. MacGray, J.D., C.F.P. ®

President

Stonecrop Wealth Advisors, LLC

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dmacgray@stonecropadvisors.com

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SOURCES:

BETTER HOMEBUYING CONDITIONS: https://calculatedrisk.substack.com/p/october-ice-mortgage-monitor-home AND https://mortgagetech.ice.com/publicdocs/mortgage/imt-october-2025-mortgage-monitor-report-7tZGfFsYkUxV.pdf

AI IS THIRSTY: https://www.zerohedge.com/ai/could-ais-growing-thirst-water-usher-localized-resources-wars

DEBT TO GDP RATIO: https://www.zerohedge.com/economics/greece-still-has-highest-debt-gdp-europe-bulgaria-lowest AND https://www.macrotrends.net/global-metrics/countries/usa/united-states/debt-to-gdp-ratio

THE BOND MARKET IS CALMING DOWN A BIT: ICE BofAML MOVE Index and Clearnomics.com

(c) 2025 Anno Domini, Stonecrop Wealth Advisors, LLC, All Rights Reserved

Investment advisory services offered through Stonecrop Wealth Advisors, LLC, a Registered Investment Advisor with the U.S. Securities and Exchange Commission.

SDG

*S&P 500: This is a measure of the performance of the 500 largest companies in the United States, and it is a common index to track the performance of U.S. equity markets, especially the large-cap markets.

*MSCI All Country World Index X US: This is a broad measure of the performance of worldwide equity markets excluding the United States.

*Bloomberg U.S. Aggregate: This is a measure of the U.S. bond markets.