US stocks declined and Treasury yields rose after Moody’s Ratings downgraded the US credit rating, citing an increase in government debt and a higher interest burden.
An exchange-traded fund tracking the S&P 500 Index fell 1% in postmarket trading after the agency downgraded the nation’s score to Aa1 from Aaa. The Invesco QQQ Trust Series 1 ETF declined 1.3%, while Treasury futures closed at session lows. The Bloomberg Dollar Index paused trading at 4 p.m. in New York before the announcement by Moody’s.
The firm attributed the downgrade to an increase in government debt, a move that clouds the nation’s status as the world’s highest-quality sovereign borrower. The firm joined Fitch Ratings and S&P Global Ratings in grading the world’s biggest economy below the top, triple-A position.
The move adds to compounding risks facing the US market as President Donald Trump’s sporadic tariff regime weighs on the economic outlook. Although the S&P 500 has recovered from the depths of last month’s rout, many Wall Street professionals remain skeptical of the advance as the toll of tariffs on business and consumer confidence threaten to show up in economic data in months ahead.
US Stocks Decline Postmarket | SPDR S&P 500 ETF Trust falls 1% after the bell
See also: US loses last top credit rating with downgrade from Moody's
Here’s how investors and market watchers are reacting to the news:
Eric Beiley, executive managing director of wealth management at Steward Partners:
“This is a warning sign. The US stock market is about to hit a ceiling after a much welcomed rally. A credit-rating downgrade by Moody’s may end up spurring some profit taking by money managers after a massive run for equities the past month.”
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Ivan Feinseth, chief investment officer at Tigress Financial Partners:
“US Treasury bonds are viewed as the safest investments in the world. When America’s credit rating gets downgraded, the reverberations may potentially be more negative for other countries’ sovereign debt because the US is the benchmark. It remains to be seen how this will affect equity markets in the coming weeks, but there may be caution following the strong stock gains recently.”
Dave Mazza, chief executive officer of Roundhill Investments:
“While Moody’s finally made it official, markets have likely seen a diminished US credit profile coming for some time. Unlike the shock of S&P’s August 2011 downgrade, this downgrade lands in a market already wary of fiscal dysfunction and tariff risk — meaning the impact on stocks may be more muted than initial headlines suggest.”
Thomas Thornton, founder of Hedge Fund Telemetry LLC:
“This is not good for overall US markets. This is not like when S&P lowered the AAA rating back in 2011 which was a shocker and markets were already teetering then. The bond market is seeing rates late in the day move higher and rates moving higher, faster and sharper has been number one on the risk list for me.”
Kim Forrest, chief investment officer at Bokeh Capital Partners LLC:
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“This is not the first time the US has been downgraded. I think this is an alarm bell. While I understand futures are probably wonky, we’ll see what happens. Because none of this is news to informed investors. Especially the most important section that we’re talking about when we’re talking about debt, which is the bond investor. They’re well aware.”
Dan Greenhaus, chief market strategist at Solus Alternative Asset Management LP:
“The United States is running a giant, peacetime budget deficit unlike anything we’ve seen probably in our lifetimes. But we all know that. Moody’s isn’t telling us anything new.”
Max Gokhman, deputy chief investment officer at Franklin Templeton Investment Solutions:
“A Treasury downgrade is unsurprising amid unrelenting unfunded fiscal largesse that’s only set to accelerate with plans currently in Congress. Moreover, debt servicing costs will continue creeping higher as large investors, both sovereign and institutional, start gradually swapping Treasuries for other safe haven assets. This, unfortunately, can create a dangerous bear steepener spiral for US yields, further downward pressure on the greenback, and reduce the attractiveness of US equities.”
Michael O’Rourke, chief market strategist at JonesTrading:
“I expect the equity market will experience a round of profit taking after the strong rebound that occurred. Back in 2011 when S&P downgraded the USA, Treasuries initially sold off but then a haven bid emerged and they rallied.”
Keith Lerner, co-chief investment officer at Truist Advisory Services:
“I don’t think this is a game changer but does provide an excuse for investors to take a little bit of profits. It does, however, highlight the potential rise in deficits and will put more focus on that with the current discussions around the extension of the tax bill.”
