Stock futures fall after Moody’s downgrades the U.S. credit rating
Stock Futures Decline After U.S. Credit Rating Downgraded by Moody’s
Stock futures took a hit before the opening bell on Monday following the downgrade of the U.S. credit rating by Moody’s Ratings on Friday. As of 8:30 a.m. EST, S&P 500 futures were down by 1.1%, shedding 65 points, while Dow Jones Industrial Average futures declined by 0.6%, or 252 points. Nasdaq Composite futures also dropped by 1.5%. Additionally, the U.S. dollar weakened and Treasury yields rose in response to the news.
Last week, investor confidence had received a boost from the announcement of a 90-day pause in high tariff rates between the U.S. and China, leading to a rally on Wall Street. However, Moody’s credit downgrade late on Friday dampened investor sentiment.
Moody’s decision to lower the U.S. credit rating from Aaa to Aa1 was accompanied by a forecast that federal deficits would widen to nearly 9% of the U.S. economy by 2035, up from 6.4% in 2024. This increase is expected to be driven by higher interest payments on debt, growing entitlement spending, and low revenue generation from taxes. Moody’s was the final major credit rating agency to downgrade the nation’s government debt.
Equities analyst Adam Crisafulli of Vital Knowledge noted that while Moody’s decision was not surprising, it served as a reminder to the markets of the serious fiscal challenges that need to be addressed. The ongoing tariff issues and the looming reconciliation bill in Congress, which could further escalate U.S. debt, were also factors contributing to market concerns.
The reconciliation bill, dubbed the “big, beautiful bill” by President Trump, is expected to increase the statutory debt limit by $4 trillion, according to the Bipartisan Policy Center. Concurrently, consumer confidence has been waning, with the University of Michigan’s consumer sentiment index showing a decline in May as Americans worry about the impact of the trade war on inflation.
Conclusion
The downgrade of the U.S. credit rating by Moody’s has sent ripples through the financial markets, prompting a decline in stock futures and raising concerns about the nation’s growing deficits and debt levels. As investors navigate these uncertainties, the impact of fiscal policies and trade tensions on economic stability remains a key focus in the weeks ahead.
