Though the benchmark S&P 500 was down in Monday’s pre-market session and into early trading, it recouped most its losses and closed out the day virtually flat, increasing 0.09%, after investors largely shrugged off a credit downgrade on U.S. debt.
Other indexes reacted similarly, with the Dow Jones Industrial Average adding 0.32% and the Nasdaq Composite rising 0.02% Monday.
The news comes on the first full market day after Moody’s lowered the U.S.’s sovereign credit rating down from Aaa to Aa1 on Friday, in line with peers like S&P and Fitch, which downgraded the U.S. in 2011 and 2023, respectively. Moody’s pointed to the federal government’s growing budget deficit and growing interest burden for the downgrade. It specifically cited the current $4 trillion tax bill being circulated by Republicans and the Trump administration’s proposed tariffs as causes for concern.
“This one-notch downgrade on our 21-notch rating scale reflects the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns,” the agency said in a statement.
The downgrade sent bond yields higher, with the 30-year U.S. bond yield trading above 5% on Monday. The last time bond yields hit those levels was in the immediate aftermath of Trump’s “reciprocal tariffs” announcement in early April, which sparked a massive selloff and raised fears that investors would flee the U.S. Treasury yields eventually fell from their highs of the day.
“The clear takeaway for fixed income investors is that there are several balls up in the air right now, creating conflicting dynamics that are impacting Treasury yields,” write John Lloyd and Greg Wilensky, Janus Henderson portfolio managers. “As we would expect, the uncertainties are manifesting themselves to a greater extent at the long end of the yield curve.”
But investors seemed to largely shrug off the news. “The Moody’s downgrade of U.S. debt doesn’t tell investors anything they don’t already know about the U.S.’s fiscal woes,” Bank of America analysts wrote.
Meanwhile, JPMorgan CEO Jamie Dimon said at the bank’s investor day Monday that the full impact of tariffs has not hit the economy yet, and that the market could fall once higher prices are factored in. Though markets tanked in the immediate aftermath of President Donald Trump’s tariff announcements, they have recouped much of the losses.
“We have huge deficits, we have what I consider almost complacent central banks,” Dimon said. “You all think they can manage all this. I don’t.”
To Dimon’s point, last week, Walmart said it will have to raise prices on consumer goods due to cost increases related to the president’s tariff policies. Trump attacked the company in response, warning the nation’s largest retailer not to increase its prices and instead “eat the tariffs.“
“I’ll be watching, and so will your customers!!!” the president posted on social media on Saturday morning.