U.S. stocks erased most of their early losses, shaking off Moody’s downgrade of the U.S. credit rating, to end higher.
Moodys cut its credit rating a notch to Aa1 from Aaa on May 16 due to likely difficulty financing the federal government’s growing budget deficit and the ramifications of rolling over existing U.S. debts in a period of high borrowing costs.
The blue-chip Dow edged up 0.32%, or 137.20 points, to 42,791.94; the broad S&P 500 added 0.09%, or 5.21 points, to 5,963.59; and the tech-heavy Nasdaq inched up 0.02%, or 4.36 points, to 19,215.46.
The benchmark 10-year Treasury rose to 4.455% and the 30-year yield climbed above the key psychological 5% level before slipping back to 4.916% as investors bet the U.S. will now have to pay more for people to hold its debt because the perceived risk of default is higher. Rates on mortgages, car loans and credit cards track the 10-year yield.
Moody’s was the last of the three major ratings agencies to downgrade the U.S. Fitch Ratings downgraded its U.S. credit rating to AA+ from AAA in 2023. Standard & Poor’s downgraded the nation’s credit rating in 2011.
“We will start by stating, undoubtedly, that U.S. Treasuries remain the most secure credit in the world,” said Mike O’Rourke, chief market strategist at JonesTrading. “Of course, we agree with most observers that the U.S. fiscal state is on an unsustainable course. It should concern everyone that U.S. federal debt outstanding is 125% of GDP, but one needs to keep the situation in perspective. Japan hit these levels two decades ago.”
Japan’s government debt outstanding now exceeds 200% of gross domestic product, and its 10-year yield is much lower than Treasuries, he noted.
“Moody’s action doesn’t reveal anything new—the US fiscal trajectory has been unsustainable for some time,” said Larry Adam, chief investment officer at Raymond James. “What’s more concerning is the continued lack of political will in Washington to address the deteriorating fiscal outlook. This inaction leaves financial markets vulnerable to bouts of volatility.”
Switzerland’s central bank chief gave a vote of confidence to US government bonds, saying there’s no alternative to them, according to Bloomberg.
Trade worries linger
Ongoing economic uncertainty will likely keep driving markets outside of the very immediate effect from the Moody’s downgrade, O’Rourke said,
On Sunday, Treasury Secretary Scott Bessent said tarff rates could go back to the aggressive levels that were announced on April 2 if countries don’t negotiate in good faith with the U.S.
“Some countries were at 10%, some were substantially higher,” he said on Meet the Press. “And the negotiating leverage that President Trump is talking about here is: if you don’t want to negotiate, then it will spring back to the April 2nd level.”
Also, China on May 19 urged the United States to “immediately correct its wrongdoings” and stop “discriminatory” measures after the U.S. issued guidance warning companies not to use advanced computer chips from China, including Huawei’s Ascend AI chips. China’s commerce ministry said in a statement the U.S. warning seriously undermined the trade deal the two countries agreed to in Switzerland.
Will U.S. Treasury yields rise more?
Moody’s downgrade will likely keep some upward pressure on yields, but that alone probably won’t be the reason yields stay high if they do, analysts said.
“The Moody’s downgrade wasn’t dramatic news (S&P and Fitch downgraded U.S. debt years ago) but it is pushing the 10-year yield higher,” wrote Tom Essaye, founder of The Sevens Report.
Additionally, “ratings downgrades are typically lagging indicators: they don’t give markets any new information,” Bank of America analysts said in a report. “Moody’s was the last of the big three ratings agencies to downgrade the US from triple-A status, following S&P (2011) and Fitch (2023).”
As a result, there will likely be a limited impact, they said.
Corporate news
The bulk of quarterly corporate earnings have been released already but Target is still on tap for later this week. After Walmart executives hinted that price increases for consumers due to tariffs may be coming soon, investors will be eager to hear how Target sees tariffs are shaping up.
-
Walmart remains in the hot seat over its comments about raising prices. Over the weekend, President Donald Trump said Walmart should “eat the tariffs” and Treasury Secretary Scott Bessent told NBC’s “Meet the Press” on Sunday that CEO Doug McMillon told him the company would absorb some of the levies. Shares of the giant retailer were just lower.
-
Regeneron said it will buy nearly all of 23andMe’s assets for $256 million after winning a bankruptcy auction. Shares of Regeneron were fractionally higher.
Cryptocurrency
Coinbase officially became first and only cryptocurrency platform to see its shares join the benchmark S&P 500 index. Its shares were fractionally lower.
Bitcoin was last down 0.93% at $105,449.20.
This story was updated with new information.
Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at mjlee@usatoday.com and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday.
This article originally appeared on USA TODAY: Stocks ignore US credit cut to end up. S&P 500 win streak at 6 days
