Stocks recovered Monday after Moody’s downgraded the US for the first time since assigning it a perfect credit rating in 1917 – sending Treasurys on a volatile ride and further weakening the dollar.
The Dow Jones Industrial Average ticked up 0.3%, or 137 points, in the first day of trading since the downgrade, while the S&P 500 and Nasdaq eked out small gains.
Moody’s slashed the nation’s credit rating down one notch from Aaa, the highest score, to Aa1 after Friday’s closing.
It was the last Aaa rating left standing among the three major agencies, after Fitch Ratings and S&P lowered their ratings for US debt in 2023 and 2011, respectively.
Moody’s attributed the downgrade to the cost of financing the government’s budget deficit, as well as heavy costs associated with rolling over existing debt due to stubbornly high interest rates.
Also over the weekend, the House Budget Committee approved President Trump’s tax bill, which is expected to add trillions of dollars to the deficit. It still faces several hurdles in the House and Senate.
Yet major stock indexes pared back earlier losses as experts argued the downgrade wasn’t much of a signal or surprise.
“I don’t think Moody’s had any information that we didn’t have on Friday afternoon,” Tom Lee, co-founder and head of research at Fundstrat Global Advisors, told CNBC’s “Squawk on the Street” on Monday.
“So I think markets should realize the bond market largely priced in the fact that the US is really not Aaa anymore, so I’d be viewing this as a buying opportunity,” he continued.
White House press secretary Karoline Leavitt told reporters that Trump disagrees with the assessment, arguing there’s “a lot of optimism in this economy.”
Treasury Secretary Scott Bessent also shrugged off the ratings change during his appearance on NBC’s “Meet the Press” Sunday morning.
“On the Moody’s downgrade, who cares? Qatar doesn’t. Saudi doesn’t. The United Arab Emirate doesn’t. They’re all pushing money in. They made 10-year investment plans,” he said.
The ratings change sent US Treasury yields soaring, though, with the 30-year yield hitting a high of around 5.03% – levels not seen since November 2023.
By approximately 2:50 p.m. ET, the 30-year note traded at 4.939%, while the 10-year and 2-year yields traded at 4.475% and 3.977%, respectively.
“I don’t think that we’re looking at a stampede out of treasuries, but I do think that when you combine the whole policy mix we have – tariffs, a lower dollar that goes with that and this sort of deglobalization trend – then you get a steady march higher in long-term yields because you’re discouraging inflow of capital, capital that we need,” Kathy Jones, chief fixed income strategist at Charles Schwab, told Bloomberg TV on Monday.
Yields will likely continue to climb until the economy weakens significantly, the Federal Reserve cuts interest rates or there is “some sort of fiscal deal that actually makes sense,” Jones added.
The US Dollar Index, which tracks the currency against a group of peers, dropped 0.6%, while gold prices jumped, resuming a rally that pushed prices to record highs as investors sought out safe-haven assets.
Global stock indexes were mixed, but the European Union slashed its growth forecasts.
