US Markets Decline Following Moody’s Credit Rating Downgrade

The S&P 500 Index ($SPX) (SPY) is down -0.76%, the Dow Jones Industrials Index ($DOWI) (DIA) has decreased by -0.40%, and the Nasdaq 100 Index ($IUXX) (QQQ) is down -0.97%. Additionally, June E-mini S&P futures (ESM25) are down -0.64%, while June E-mini Nasdaq futures (NQM25) have fallen -0.80%.

Today’s stock indexes are trending lower as Treasury note yields surged after Moody’s Ratings downgraded the US’s credit rating from Aaa to Aa1. The rating agency cited a rising budget deficit and fiscal concerns as key reasons for this decision, which occurred late last Friday. Consequently, the dollar dropped to a one-week low, and the one-year T-note yield jumped to a five-week high of 4.562%, indicating that investors are moving away from dollar assets in response to the downgrade.

This marks the third time in recent years that the US has lost its top credit rating, following downgrades by S&P in 2011 and Fitch earlier this year. Moody’s has now followed suit with its downgrade.

The volume of outstanding Treasury securities has skyrocketed from $4.5 trillion in 2007 to nearly $30 trillion today. This surge highlights the government’s borrowing increase during the pandemic and the ongoing challenge of managing the federal budget deficit. SIFMA, a bond market trading group, has reported that annual gross sales of government debt have climbed from $362 billion in 2007 to a staggering $2.6 trillion last year. The Congressional Budget Office indicates that the ratio of total US public debt to the economy has risen from roughly 35% in 2007 to 100% today.

Comments from Atlanta Fed President Bostic today reflected concerns about inflation, stating, “Given the trajectory of our two mandates, I worry a lot about the inflation side, and mainly because we’re seeing expectations move in a troublesome way.” He’s leaning towards a single Fed rate cut this year and noted that the recent downgrade by Moody’s could negatively impact US companies and households that rely on borrowing.

Upcoming Economic Indicators

This week, the markets will keep a close eye on tariff news and any new trade deals. On Thursday, weekly initial unemployment claims are anticipated to rise by 1,000 to a total of 230,000. Furthermore, the May S&P manufacturing PMI is forecasted to decline by 0.3 to 49.9. Existing home sales for April are predicted to increase by 2.0% month-over-month to 4.10 million, while new home sales are projected to fall by 4.7% month-over-month to 690,000.

Currently, the markets are pricing in a 9% chance of a 25 basis point rate cut at the upcoming FOMC meeting on June 17-18.

Earnings Season Insights

As Q1 earnings reporting season wraps up, over 85% of companies in the S&P 500 have reported quarterly results, and 77% have surpassed estimates, marking the highest rate since Q2 of 2024. Earnings growth for Q1 is tracking at +13.1%, significantly higher than the +6.6% anticipated before the season commenced. Looking ahead, the forecast for 2025 corporate profits for the S&P 500 has been revised down to +9.4% from an earlier estimate of +12.5% made in January.

Global Market Snapshot

International stocks are mostly trending lower today. The Euro Stoxx 50 is down -0.74%, while China’s Shanghai Composite remained unchanged. Japan’s Nikkei Stock 225 saw a decline of -0.68%.

Interest Rates Update

June 10-year T-notes (ZNM25) are down -20 ticks, with the 10-year T-note yield climbing by +6.0 basis points to 4.537%. Following the downgrade from Moody’s last Friday, the yield spiked to a five-week high of 4.562%. T-notes are under pressure due to negative carryover effects from a decline in European government bonds, alongside Bostic’s comments about troubling inflation expectations.

European government bond yields are also rising, with the 10-year German bund yield increasing by +3.5 basis points to 2.625%. The yield on the 10-year UK gilt rose to a five-week high of 4.726% after an increase of +4.5 basis points.

In remarks, ECB President Lagarde attributed the dollar’s recent drop against the euro to “the uncertainty and loss of confidence in US policies among certain segments of the financial markets.” Swaps are indicating a 91% probability of a 25 basis point rate cut at the ECB’s upcoming policy meeting on June 5.

US Stock Movers

Concerns over the Magnificent Seven stocks are affecting broader market performance. Tesla (TSLA) is down over -3%, while Apple (AAPL) has decreased by more than -2%. Nvidia (NVDA) and Meta Platforms (META) are also down -0.87% and -0.50% respectively, along with Alphabet (GOOGL) and Amazon.com (AMZN), depreciating by -0.35% and -0.15% respectively.

Chip stocks are experiencing a downturn today, with Marvell Technology (MRVL) leading losers in the Nasdaq 100, down more than -4%. ARM Holdings Plc (ARM) is down over -3%, while other semiconductor firms like ON Semiconductor (ON), Intel (INTC), and AMD are down more than -2%.

Reddit (RDDT) has dropped more than -4% after Wells Fargo Securities downgraded the stock from overweight to equal weight. NuScale Power (SMR) is down more than -3%, also following a sign of insider selling, as the CEO recently sold $623,375 worth of shares. Shake Shack (SHAK) has decreased more than -2% after TD Cowen downgraded the stock to hold, citing high valuation concerns amidst a tough consumer spending climate. Netflix (NFLX) is down more than -1% after JPMorgan Chase downgraded it to neutral from overweight.

Conversely, gold mining stocks are climbing today, with the price of COMEX gold increasing by over +1%. Notable gainers include Anglogold Ashanti Plc (AU) and Gold Fields Ltd (GFI), both up more than +1%. Health insurance stocks, previously struggling, are rebounding; UnitedHealth Group (UNH) is up more than +4%, leading gains in the S&P 500, while Humana (HUM) is up more than +1%.

RxSight (RXST) has seen an increase of over +16% after Wells Fargo Securities upgraded it to overweight with a target price of $25. Meanwhile, Take-Two Interactive Software (TTWO) is up more than +2%, following a price target increase from Morgan Stanley to $265 from $210.

Earnings Reports for May 19, 2025

Companies reporting earnings include 8×8 Inc (EGHT), Agilysys Inc (AGYS), Aldeyra Therapeutics Inc (ALDX), Gencor Industries Inc (GENC), Safe Bulkers Inc (SB), Target Hospitality Corp (TH), and Transcat Inc (TRNS).

On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data here are for informational purposes only. For further details, please refer to the Barchart Disclosure Policy.

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The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.