U.S. Stocks Rebound Despite Moody's Credit Rating Downgrade

Hadisur Rahman, JadeTimes Staff

H. Rahman is a Jadetimes news reporter covering Business

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Image Source: Kylie Cooper, REUTERS

U.S. stocks recovered from early losses to close higher on May 16, shaking off Moody's downgrade of the U.S. credit rating. Moody's cut its rating from Aaa to Aa1, citing concerns over the federal government's growing budget deficit and the challenges of refinancing existing debts amid high borrowing costs.

The blue-chip Dow Jones Industrial Average rose 0.32%, or 137.20 points, to finish at 42,791.94. The S&P 500 added 0.09%, or 5.21 points, closing at 5,963.59, while the tech-heavy Nasdaq inched up 0.02%, or 4.36 points, to 19,215.46.

In the bond market, the benchmark 10-year Treasury yield climbed to 4.455%, and the 30-year yield briefly surpassed the psychological 5% mark before settling back to 4.916%. Investors are anticipating that the U.S. will need to offer higher yields to attract buyers for its debt due to increased perceived risks of default. Mortgage, car loan, and credit card rates typically follow the 10-year yield.

Moody's downgrade marks the last of the three major ratings agencies to lower the U.S. credit rating, following Fitch Ratings' downgrade to AA+ in 2023 and Standard & Poor’s downgrade in 2011.

Mike O'Rourke, chief market strategist at JonesTrading, emphasized that U.S. Treasuries remain the most secure credit globally, despite concerns over the unsustainable fiscal trajectory of the U.S. government, which has a federal debt outstanding of 125% of GDP. He noted that Japan faced similar debt levels two decades ago, with its current debt exceeding 200% of GDP.

Larry Adam, chief investment officer at Raymond James, echoed these sentiments, stating that the downgrade does not reveal new information but highlights the lack of political will in Washington to address the fiscal outlook, leaving markets vulnerable to volatility.

Trade tensions continue to loom, with Treasury Secretary Scott Bessent warning that tariff rates could revert to aggressive levels if countries do not negotiate in good faith with the U.S. Meanwhile, China urged the U.S. to correct its "wrongdoings" after the U.S. issued guidance against using advanced computer chips from Chinese companies, including Huawei.

Analysts suggest that while Moody's downgrade may exert upward pressure on Treasury yields, it is unlikely to be the sole reason for sustained high yields. Bank of America analysts noted that ratings downgrades are typically lagging indicators and do not provide new market information.

In corporate news, Target is set to report earnings later this week, following Walmart's comments about potential price increases due to tariffs. Walmart's shares dipped after President Trump suggested the retailer should "eat the tariffs." Regeneron announced it would acquire nearly all of 23andMe’s assets for $256 million, with its shares rising slightly.

In the cryptocurrency market, Coinbase became the first cryptocurrency platform to join the S&P 500 index, although its shares were down fractionally. Bitcoin was last reported at $105,449.20, down 0.93%.