S&P 500 Plummets After Moody's Downgrades U.S Assets

U.S. stocks declined and Treasury yields rose on Monday following Moody’s Ratings decision to downgrade the U.S. government’s credit rating, intensifying concerns over American fiscal stability and putting additional pressure on financial markets.

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The S&P 500 Index dropped by 1% shortly after the market opened in New York, while the tech-focused Nasdaq 100 fell even more sharply, losing 1.3%. Meanwhile, the yield on 30-year U.S. Treasuries climbed above 5%, reaching its highest level since November 2023. This spike in yields reflects investor unease about the country’s growing debt burden and fiscal outlook.

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Moody’s announcement, which came late Friday, lowered the U.S. government’s credit rating from the highest Aaa level to Aa1. The agency cited years of fiscal mismanagement under multiple administrations and Congress, pointing to a persistently expanding budget deficit with little sign of improvement. This downgrade follows earlier moves by S&P Global Ratings in 2011 and Fitch Ratings in 2023, both of which had already cut the U.S. rating to AA+.

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Kevin Gordon, senior investment strategist at Charles Schwab, noted that while the downgrade may not be a shock given that Moody’s had the U.S. on negative watch for a while, the timing is significant. “It landed just as market sentiment was becoming overly optimistic,” he said, adding that this development could weigh on stocks in the near term and slow progress on issues like tariff relief.

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The downgrade adds another challenge for investors navigating a market that had recently bounced back from losses triggered by trade tensions. In the lead-up to Monday’s session, the S&P 500 had logged five consecutive days of gains and was nearly 20% higher since its early April lows, approaching bull market territory.

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Despite concerns, some analysts played down the longer-term impact of Moody’s decision. Ross Mayfield, investment strategist at Baird, acknowledged the downgrade highlights real fiscal issues but argued these concerns are already well understood by markets. “This could just be a moment for the market to pause after a strong run,” he said. “It would take something more severe to significantly disrupt the rally.”

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Other Wall Street voices echoed this sentiment. Morgan Stanley’s Michael Wilson encouraged investors to view any dip triggered by the downgrade as a buying opportunity, pointing out that progress on a trade truce with China has lowered recession risks. Similarly, Max Kettner, chief multi-asset strategist at HSBC, suggested any pullback in risk assets offers a chance to increase exposure. “The U.S.-China deal is a gamechanger,” he wrote in a client note. “The Moody’s downgrade hasn’t derailed the positive momentum—at least not yet.”

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Investors are also watching the Federal Reserve closely for insight into future monetary policy. Several Fed officials are scheduled to speak throughout Monday, offering possible signals about the direction of interest rates. Raphael Bostic, president of the Atlanta Fed, reiterated his concern over inflation and said he still expects only one rate cut this year.

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Adding to the political backdrop, President Donald Trump is slated to speak with Russian President Vladimir Putin in an effort to advance discussions on ending the war in Ukraine. European leaders are reportedly concerned that Trump may try to finalize a deal too hastily.

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Meanwhile, on Capitol Hill, Trump’s sweeping tax and spending package made progress as Republican hardliners dropped their opposition, allowing a key House committee to move the legislation forward.

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In company news, several stocks were in the spotlight. Nvidia Corp. drew attention after CEO Jensen Huang unveiled a range of new technologies at Computex in Taiwan. These included faster chip systems and software tools intended to keep the AI boom on track, reflecting Nvidia’s ongoing push to dominate the artificial intelligence market.

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Shares of Alibaba dropped after the New York Times reported that the Trump administration had raised red flags about Apple Inc.’s potential partnership with the Chinese tech giant.

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The news reignited fears about the fragility of U.S.-China tech relations. Reddit shares also declined following a downgrade from Wells Fargo, which lowered its rating from overweight to equal-weight. Analysts cited lasting user disruptions and warned that Google’s increasing use of AI in its search functions could further hurt Reddit’s traffic and visibility.

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Overall, Monday’s market reaction underscores the tension between short-term headlines like credit downgrades and broader themes such as improving trade relations and innovation in technology. While the Moody’s decision clearly rattled markets, many on Wall Street are treating it as a temporary setback rather than a sign of a long-term downturn.

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