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The US lost its final triple-A rating on Friday.
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The move rattled markets on Monday but Wall Street thinks investors will push past the downgrade.
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“We think the reaction may be more muted than it was in 2023,” JPMorgan said.
The “sell America” trade saw a resurgence on Monday after America lost its last top-tier credit rating, but Wall Street thinks markets can sidestep any volatility related to the downgrade.
Moody’s slashed America’s credit rating from Aaa to Aa1 due to concerns about the country’s fiscal situation. Treasurys sold off on the news, briefly sending the 30-year yield above 5%, its highest level since 2023.
Regardless of the morning jitters, most forecasters on Wall Street aren’t bracing for a major spike in volatility, even as they acknowledge disruptions caused by previous downgrades from major credit rating firms.
Here’s what top banks are saying after the US lost its triple-A credit rating:
JPMorgan
Moody’s cut is unlikely to trigger a repeat of April’s bond market chaos, analysts wrote on Sunday.
To be sure, the 10-year Treasury yield did continue rising in the weeks after Fitch Ratings downgraded US debt in 2023, but macroeconomic factors also played a role at the time; interest rates were still rising, and the Treasury yield kept boosting the supply of debt.
“With Moody’s being the last ratings agency to downgrade the US, this action was not unexpected, and we think the reaction may be more muted than it was in 2023,” the bank wrote. “We think this event should lead to smaller moves than witnessed in early-April after the Liberation Day tariff announcements, as investor positioning is more neutral now.”
Bank of America
Bank of America echoed JPMorgan, telling clients it expects a short-lived pop in Treasury yields.
Investors shouldn’t worry about forced selling, either, as major fixed-income indexes don’t require a triple-A rating to maintain Treasury holdings.
UBS and Morgan Stanley
As for stocks, though the equity market dipped after the downgrade, equity investors are likely more focused on other developments, UBS said.
“With Moody’s the third credit ratings agency to downgrade the US, we believe that the shock factor for investors has likely faded,” UBS analysts wrote. “In recent weeks, global investors have been more focused on effective US tariff rates, which we see settling in the 15% region.”
Meanwhile, Morgan Stanley suggested that investors buy the downgrade dip on the idea that continued strength in earnings could be a catalyst for fresh gains in the S&P 500.
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