S&P 500 slumps as Moody's US downgrade sinks in

US stocks fell and Treasury yields rose as a downgrade from Moody’s Ratings on the US government’s credit rating renewed pressure on American assets.

The S&P 500 Index sank 1% as of 9:32 a.m. in New York, while the technology-heavy Nasdaq 100 Index dropped 1.3%. The 30-year Treasury yield eclipsed 5%, climbing to its highest level since November 2023.

Moody’s announced Friday evening that it was stripping the US government’s top credit rating, dropping the country to Aa1 from Aaa. The agency blamed successive presidents and congressional lawmakers for a swelling budget deficit it said showed little sign of narrowing.

“I don’t think it’s much of a surprise given the facts that the US has been on negative watch for quite some time, and that this follows similar actions from S&P and Fitch,” said Kevin Gordon, senior investment strategist at Charles Schwab & Co. “It just happens to be the case that this hit as sentiment got really stretched and a bit frothy, so I wouldn’t be surprised if this continues to put some downward pressure on stocks and stalls the progress we’ve made on tariff relief.”

The downgrade adds to mounting risks facing the US market after equities round tripped from the depths of last month’s tariffs-triggered rout, clouding progress touted by the White House on trade negotiations. Ahead of Monday, the S&P 500 gained for five consecutive trading sessions, jumping nearly 20% since April 8 toward a bull market.

“While the downgrade does underscore the US’s obvious fiscal issues, it’s an issue that’s very well understood by markets at this point,” said Ross Mayfield, investment strategist at Baird. “In reality, the headline is a good excuse for a tactically overbought market to take a breather after a massive rally off the early April lows, but in my opinion, it would take something more ominous to derail the broader rally.”

Wall Street strategists, who largely failed to anticipate the sharpest selloff since the Covid crash of 2020 earlier this year as President Donald Trump commenced his trade war, mostly dismissed the downgrade.

Morgan Stanley strategist Michael Wilson said investors should buy any dips in US stocks fueled by Friday’s cut, as the trade truce with China has reduced the odds of a recession. Across the Atlantic at HSBC Holdings Plc, chief multi-asset strategist Max Kettner said his team sees any fall in risk assets as an opportunity to scale up exposure.

“We view the US-China deal as a gamechanger for risk assets,” Kettner wrote Monday in a note to clients. “Does the Moody’s downgrade spoil the party? Not yet.”

Traders will tune into a chorus of Federal Reserve officials slated to deliver remarks on Monday in various speaking engagements across the country for clues on the trajectory for interest rates. Fed Bank of Atlanta President Raphael Bostic emphasized his worries over inflation as he repeated his expectation for one interest-rate cut this year.

Also on Wall Street’s agenda, Trump is scheduled to have a phone call Monday with Russian president Vladimir Putin as European leaders are trying to prevent the US president from rushing through a deal. 

Over on Capitol Hill, a key House committee advanced Trump’s giant tax and spending package after Republican hardliners dropped a blockade against the legislation. 

In individual stocks on watch, Nvidia Corp. is in focus after chief executive officer Jensen Huang showed new technologies from faster chip systems to software aimed at sustaining the AI boom at Computex in Taiwan.

Alibaba ADRs dropped after the New York Times reported that the Trump administration has raised concerns over Apple Inc.’s potential deal with the Chinese tech giant. Reddit fell following a downgrade by Wells Fargo to equal-weight from overweight, with analysts saying that recent user disruptions are likely to be more permanent as Google “more aggressively” implements AI features in search.