The S&P 500's rally stalls at the key Fibonacci target. What that means for stocks.

By Neal Templin

As stocks gyrate wildly, bonds remain a stellar deal for retirees seeking income.

A variety of fixed-income instruments — from Treasuries to bank certificates of deposit to multiyear guaranteed annuities — carry juicy yields. And most of the yield curve is no longer upside down, meaning investors get a growing premium for holding longer-term bonds.

If you are a retiree with yearly spending needs, now is a great time to create a bond ladder where a rung matures every year and gives you guaranteed income. Rising rates have made the payouts more attractive.

Why has bond pricing improved so dramatically? In the wake of the Covid-19 pandemic, bonds yielded almost nothing as the Federal Reserve tried to spur the economy. Then in 2022, the Fed pivoted and its anti-inflation campaign sent interest rates soaring, inflicting big losses on bondholders because of the inverse relationship of yields and prices. Bond yields remain elevated today amid continuing fears that inflation might rear its ugly head again, particularly in the wake of President Donald Trump's trade war. The benchmark 10-year Treasury yields 4.37% at recent check; in January 2022, it yielded less than 2%.

After adjusting for inflation, the real yield is something on the order of 2% for Treasuries currently, says Larry Swedroe, a retired market strategist who writes a newsletter on the publishing platform Substack. He adds that real yields were negative for quite a while.

If you are looking for simplicity, an easier way to own bonds is through a bond mutual index fund or exchange-traded fund. Funds hold a large number of issues covering swaths of the market. You can simply invest your money and forget about it. If you are still working and accumulating wealth, bond funds or ETFs are the way to go.

With interest rates still erratic, many experts recommend you stick to less volatile funds like the Fidelity Short-Term Treasury Bond Index fund, which is currently yielding 3.87% and has delivered a total return of 2.4% this year.

Never forget that you can lose money with a bond fund. When interest rates soared in 2022, bond funds took steep losses. The Vanguard Total Bond Market Index Fund Admiral Shares posted a stunning -13.2% total return that year. But the fund has a 4.41% yield currently, and it has returned 2.1% this year even as stocks have suffered.

If you are a retiree or are about to retire, there are reasons to directly hold bonds and build bond ladders, says Wade Pfau, author of the Retirement Planning Guidebook. This approach can better protect you from interest-rate shock.

Suppose you want an annual income of $10,000 for the next 10 years. Pfau suggests buying a series of zero-coupon Treasuries maturing annually over the next decade that will each be worth $10,000. The market value of these bonds will tumble if interest rates rise. But if you wait until maturity, you still get your $10,000 each year.

"You're trying to meet expenses, and the bond ladder is set up to meet those expenses," Pfau says. "The duration of your bonds matches the duration of your liability; you don't have interest-rate risk."

You do, however, have inflation risk. Rising interest rates, as in 2022, often come in periods when prices are spiking. There is a risk that the $10,000 you receive will be worth less each year because of rampant inflation.

Retirees can inoculate themselves against inflation by building a bond ladder with Treasury inflation-protected securities (TIPS) instead of standard Treasuries. The good news is that TIPS are far better deals than a few years ago. With a 30-year TIPS ladder, it is currently possible to give yourself nearly a 4.7% payout that rises with inflation as you spend down your investment to zero.

TIPS currently are more attractively priced than traditional Treasuries, Swedroe says. "You have to be a huge risk taker to buy nominal Treasuries. You're much better off buying TIPS."

But even retirees shouldn't have all their money in bond ladders. It's a good idea to have a chunk of liquid money in cash or short-term bond funds for the emergencies of life.

"Use that money for an emergency — your car breaks down — and you don't want to sell assets," Swedroe says. "Six months to a year's spending is appropriate."

Write to Neal Templin at neal.templin@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

China's consumer prices continued to decline in April, suggesting Beijing's previous efforts to boost domestic consumption haven't been successful in persuading cautious Chinese households to open their wallets as steep U.S. tariffs cloud growth prospects.

The consumer-price index declined 0.1% from a year earlier in April, matching the fall seen the prior month and marking a third straight month of drops, the National Bureau of Statistics said Saturday. A Wall Street Journal poll of economists had predicted a 0.1% drop.

Meanwhile, China's producer-price index dropped 2.7% from a year earlier in April, widening from March's 2.5% fall and keeping the gauge in negative territory for more than two years. Surveyed economists had expected the PPI to decline 2.8% from a year earlier last month.

Economists have expected the steep duties slapped by President Trump on Chinese products to exacerbate China's already-stubborn disinflationary pressures as they anticipate that exporters will be forced to redirect some of their products to domestic consumers as outbound shipments dwindle.

Potential rising unemployment and lower pay as tariffs hit Chinese manufacturers may also prompt China's already-budget-conscious consumers to further tighten their purse strings, economists say.

While Chinese exports held up well last month with plunging U.S.-bound shipments offset by a surge in Chinese goods to emerging markets, analysts widely expect Trump's tariffs to inflict more pain on the world's second-largest economy in the coming months. An official gauge of new export orders nosedived in April to its lowest reading since 2022.

With China and the U.S. set to start icebreaker trade negotiations in Switzerland on Saturday, attention is on any signs of an agreement for reductions on the prohibitive tariffs the two sides have imposed on each other. Beijing imposed a 125% across-the-board tariff on U.S. goods in retaliation against the 145% U.S. levies on Chinese products.

Ahead of the talks, Trump said Friday in social-media posts that an 80% tariff on China "seems right." While that would represent de-escalation, analysts say such a level would still prohibit normal bilateral trade.

Signaling Beijing's patience for a trade deal, People's Daily, the ruling Communist Party's flagship newspaper, said in an editorial printed Saturday that it is unrealistic to expect one or two rounds of negotiations to resolve the problem and China is clearly aware of the complexity of such talks.

With China's official annual growth target of around 5% under threat, Beijing sprung into action on Wednesday with earlier-than-expected rate cuts and liquidity boosts. However, the Chinese leadership has refrained from announcing further fiscal expansion that economists say needs to take center stage in any stimulus plan as they face the double challenges of a property slump and pressured exports.

"To cope with these unprecedented challenges, we believe Beijing needs to take bolder moves to clean up the mess in the property sector, support consumption in a more sustainable way by reforming the pension system, fix the fiscal system to better protect business owners and improve its relationships with other economies," said Nomura economists when commenting on Beijing's monetary easing this week.

For economists at UBS, the government needs to roll out additional broad fiscal stimulus of 1.5-2% of China's gross domestic product later this year to cushion tariff impact as they expect it would take some time to reach a meaningful deal.

New fiscal stimulus may not come out immediately, but may land as early as the end of the second quarter after China accelerates its planned budget spending and Beijing assesses the actual impact of the tariff shock in the next few months, UBS economists said in a note this week.

Underscoring authorities' renewed sense of urgency to combat disinflationary pressures, China's central bank is urging joint efforts with departments across the government to boost consumer prices, adopting unusually strong language in a monetary policy report published Friday.

Weak domestic demand and excessive competition in some industries have contributed to low prices in China and a combination of fiscal, monetary, employment and social security policies is needed to bolster prices and balance supply and demand in the economy, the People's Bank of China said.

"We must also shift from controlling high prices to controlling low prices, from supporting scale expansion to high-quality development, and from preventing monopoly to preventing disorderly competition," the PBOC said.

By Richard Rubin

WASHINGTON — The first public version of Republicans' long-awaited tax bill aims to put more money in Americans' pockets quickly in early 2026, extending President Trump's expiring tax cuts and adding some new twists that would boost many tax refunds next year and increase take-home pay.

The bill released late Friday would increase the standard deduction by $1,000 for individuals and $2,000 for married couples starting in tax year 2025, above and beyond the Trump tax cuts' expansion of that basic level where income taxes don't apply. The standard deduction is currently $15,000 for individuals and $30,000 for married couples.

The maximum child tax credit would increase to $2,500 from $2,000, also starting this year. Those changes would mean that many taxpayers who don't change their withholding would see larger-than-expected refunds in spring 2026.

In addition, the proposal from the House Ways and Means Committee adds an extra inflation adjustment to tax brackets for tax year 2026 — a benefit that would show up in smaller paycheck withholding in January.

The Ways and Means bill sets the stage for a Tuesday committee debate and vote. The tax package will be combined with other committees' ideas into Trump's "one big, beautiful bill," a giant package of spending cuts, tax cuts and new spending that the House is trying to pass this month.

Friday's bill is incomplete and will likely be changed substantially before the committee vote. It is silent on some of the issues that are dividing Republicans, including the cap on the state and local tax deduction and the fate of clean-energy tax credits that Democrats created in 2022. It doesn't include the tax-rate increase for the wealthy that Trump has been floating in recent days.

The changes to the standard deduction and child tax credit wouldn't be permanent under the proposal, but they would have an immediate effect above and beyond maintaining the status quo. The boosts would make it easier for Republicans to show Americans some benefit from tax cuts before the 2026 midterm elections.

Lawmakers have been touting their plan as preventing an enormous tax increase, but many Americans who don't closely follow the tax law may be unaware of that looming threat. Offering an additional tax cut that people can see early next year could make it easier to sell as Republicans look to defend their slim House majority.

"Pro-family, pro-worker tax provisions are the heart of President Trump's economic agenda that puts working families ahead of Washington and will create jobs, grow wages and investment, and help usher in a new golden age of prosperity," Committee Chairman Jason Smith (R., Mo.) said.

Democrats are expected to oppose the bill. They argue that the tax-cut extensions give too much to upper-income households and warn that middle-income Americans would be hurt by the GOP plan's expected Medicaid cuts and by Trump's recent tariffs.

"Releasing this bill under the cover of darkness, omitting major provisions, the only marker that this is Republican marquee legislation are the tax cuts for billionaires," said Rep. Richard Neal (D., Mass.), the top Democrat on Ways and Means.

The bill also includes few of the potential tax increases that Republicans have been considering, and has no mention of such ideas as higher taxes on university endowments, limits on deductions for executive pay and caps on businesses' ability to deduct state and local taxes. It doesn't yet include versions of Trump's desired proposals, such as faster write-offs for factory construction projects and removing taxes on tips, overtime pay and Social Security benefits.

The bill does include a permanent extension of higher estate-tax exemptions, setting that at $15 million per person in 2026 and indexing it to inflation. It would also permanently extend the deduction for certain closely held businesses that pay taxes through their owners' individual returns, boosting that break to 22% from 20% while changing some rules. The top tax rate on that income from closely held businesses would drop to 28.9% from 29.6%. Multinational companies would avert tax increases on certain foreign profits and some income from U.S. exports.

The plan also retains some key limits on deductions that Congress created in 2017, such as a rule that caps at $750,000 the amount of mortgage debt that can generate deductible interest. It would permanently repeal miscellaneous itemized deductions, such as legal fees and unreimbursed business expenses. Moving expenses in most cases would remain nondeductible.

The nonpartisan Joint Committee on Taxation didn't release revenue estimates on Friday. That — plus the incomplete nature of the plan so far — makes it hard to tell immediately how the bill might fit within a fiscal constraint that is likely to be $4 trillion over a decade.

Although the bill would make some tax cuts permanent, it schedules some to lapse in a few years, a move that lowers the headline cost but sets up expirations for a future Congress to address. For example, the extra standard deduction lasts only through 2028. So does the $2,500 child credit, which would drop to $2,000 in 2029 and then increase with inflation.

Write to Richard Rubin at richard.rubin@wsj.com

Investor Sentiment Readings

High bullish readings in the Consensus stock index or in the Market Vane stock index usually are signs of Market tops; low ones, market bottoms.

 
                              Last Week  2 Weeks Ago  3 Weeks Ago 
Consensus Index 
Consensus Bullish Sentiment   47%        45%          42% 
AAII Index 
Bullish                       29.4%      20.9%        21.9% 
Bearish                       51.5       59.3         55.6 
Neutral                       19.0       19.8         22.5 
Market Vane 
Bullish Consensus             44%        43%          41% 
TIM Group Market Sentiment 
Indicator                     53.7%      44.7%        49.8% 
Sources: Consensus Inc.; American Association of 
Individual Investors; Market Vane; TIM Group 
 
 

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                                  High        Low      Close     Change 
                                  ----        ---      -----     ------ 
  S&P SmallCap 600 Index      1,272.41   1,259.71   1,264.32       0.35 
  S&P MidCap 400 Index        2,959.21   2,935.67   2,946.27      -2.33 
  S&P 100 Index               2,755.00   2,728.96   2,736.02      -2.81 
  S&P 500 Index               5,691.69   5,644.15   5,659.91      -4.03 
 
 
Source: FactSet 
 

                                  High        Low      Close     Change 
                                  ----        ---      -----     ------ 
  S&P SmallCap 600 Index      1,272.41   1,259.71   1,264.32       0.35 
  S&P MidCap 400 Index        2,959.21   2,935.67   2,946.27      -2.33 
  S&P 100 Index               2,755.00   2,728.96   2,736.02      -2.81 
  S&P 500 Index               5,691.69   5,644.15   5,659.91      -4.03 
 
 
Source: FactSet