Moody’s downgraded the U.S.’s credit rating on Friday, causing stock futures to tumble and Treasury yields to spike on Monday morning. Futures tied to the Dow dropped nearly 300 points, while S&P 500 and Nasdaq 100 futures also fell sharply. The downgrade, which aligned Moody’s rating with its peers, cited financing challenges related to the growing federal budget deficit and the ramifications of rolling over existing U.S. debts amid high borrowing costs.
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The 30-year U.S. bond yield topped 5%, and the 10-year yield rose above 4.5%, putting pressure on equity markets.
Peter Boockvar, chief investment officer at Bleakley Financial Group, noted that the downgrade “is symbolic, highlighting that the U.S. has strained debts and deficits.” He added that the fundamental factor of less foreign demand for U.S. debt and the growing debt pile needing constant refinancing will not change. Tech stocks will likely suffer if rising yields slow the economy and dampen investor risk appetite, leading to premarket losses.
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Palantir, Tesla, and Nvidia all saw significant drops.
The downgrade follows a strong week for Wall Street, as investors cheered the White House’s deal with China, seen as a breakthrough for global trade.
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U.S. credit rating impacts markets
However, traders now see more trade deals as key to sustaining the stock market’s recovery, provided that yields don’t scare away investors first. British government bond yields rose following the EU and the U.K.’s agreement to reset their post-Brexit relations. European shares opened in negative territory on Monday, with losses in most sectors and major bourses.
President Donald Trump criticized Walmart on social media over the weekend, urging the retailer to absorb the costs of tariffs rather than passing them on to consumers. Walmart responded that it is working to keep prices as low as possible despite small retail margins. As investors brace for future volatility, the debate continues over how best to manage America’s fiscal path forward in light of the recent downgrade and ongoing trade concerns.
