Moody’s downgrade triggers U.S. stock sell-off

U.S. stock futures fell on Monday after Moody’s downgraded the nation’s credit rating. The move reflects growing concerns about the country’s fiscal health and the potential impact of proposed tax cuts. As of 8:30 a.m. EST, S&P 500 futures had dropped 65 points, or 1.1%. https://twitter/alanfriedmanit/status/1923620617363816761 Dow Jones Industrial Average futures declined 252 points, or 0.6%, while the tech-heavy Nasdaq Composite futures shed 1.5%. The U.S. dollar also weakened, and Treasury yields rose. Moody’s downgraded the U.S. credit rating from Aaa to Aa1 on Friday. https://twitter/elerianm/status/1924431587610902857 The agency cited projections that federal deficits will widen to almost 9% of the U.S. economy by 2035, up from 6.4% in 2024. This increase is driven mostly by higher interest payments on debt, growing entitlement spending, and low revenue generation from taxes. “The decision was hardly surprising,” said Adam Crisafulli, equities analyst and head of Vital Knowledge, in a research note. “But it did serve to remind markets, which had become quite complacent and expensive in the last few weeks, that there is a serious fiscal problem that needs to be reckoned with.” https://twitter/elerianm/status/1923493799931601039 The downgrade also highlighted apprehensions regarding the reconciliation bill in Congress, which could potentially increase the statutory debt limit by $4 trillion. President Trump has referred to this bill as the “big, beautiful bill,” which is expected to further fuel U.S. debt, according to Oxford Economics analyst John Canavan. https://twitter/rweingarten/status/1923936753767022868

Moody’s downgrade impacts market stability

Concerns over debt come as consumer confidence continues to slip. The University of Michigan’s consumer sentiment index, released last week, showed that consumer confidence dipped again in May as Americans fretted over the trade war’s impact on inflation. The credit rating downgrade was the last of the three major agencies to lower the nation’s debt rating. The move reminds us of the serious fiscal challenges facing the United States. Financial markets were turbulent on Monday, with investors selling off U.S. stocks, bonds, and the dollar. The negative sentiment reflects growing worries about the outlook for the world’s largest economy. Bond markets also reacted sharply to the news. The 10-year U.S. Treasury yield jumped to 4.54%, a significant increase. The yield on the 30-year bond rose even more, reaching its highest level in a year and a half, above 5%. Bond yields move inversely to prices. The latest developments threaten the relative calm that has prevailed in markets since President Trump paused many of his proposed tariffs in recent weeks. Investors are now closely watching the contentious Congressional debates over the bill and its implications for the U.S. economy.