(Bloomberg) - Moody's rating lowered its U.S. credit rating, citing increased government debt and higher interest burdens, U.S. stocks fell and Treasury yields rose.
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An exchange-traded fund tracked the S&P 500 down 1% in postal market trading after the institution lowered U.S. score from AAA to AA1. The Invesco QQQ Trust Series 1 ETF fell 1.3%, while Treasury futures closed at conference lows. The Bloomberg Dollar index stopped trading at 4 p.m. in New York before Moody's announcement.
The company attributed the downgrade to an increase in government debt, a move that made the country the world's highest-quality sovereign borrower. The company joins Fitch Ratings and Standard & Poor’s Global Ratings, rating the world’s largest economy below the Triple-A position.
The move increases complex risks to the U.S. market as President Donald Trump's sporadic tariff regime worsens its economic outlook. While the S&P 500 has recovered from the depths of last month’s rout, many Wall Street professionals remain skeptical of the advancement as the loss of tariffs threatens to commercial and consumer confidence in the coming months.
Here is how investors and market observers react to the news:
Eric Beiley, Executive Director, Manager of Wealth Management, Housekeeper Partners:
"This is a warning sign. U.S. stocks are about to reach the ceiling after a welcome rally. Moody's credit review downgrade may eventually promote some profits for monetary managers after a massive investment in stocks over the past month."
Ivan Feinseth, Chief Investment Officer, Tigress Financial Partners:
"U.S. Treasury bonds are seen as the safest investment in the world. When the U.S. credit rating falls, sovereign debt to other countries may be more negative because this will affect the stock market in the next few weeks, but may be cautious in recent stocks."
Dave Mazza, CEO of Roundhill Investments:
"While Moody's finally becoming formal, the market may see a decline in U.S. credit profile for some time. Unlike the shock of S&P's downgrade in August 2011, this reduces downgrade land in markets that are already alert to fiscal dysfunction and tariff risks, which means the impact on stocks may be more misunderstood than the original headlines."
Thomas Thornton, founder of the hedge fund Telemetry LLC:
"This is not good for the overall U.S. market. It was a shocking rating when S&P lowered its AAA rating in 2011, when it was already shocking. The market was already shaking at the time. The bond market saw higher prices late in the day, and the price was higher, higher, faster, more agile, and I was number one on my risk list."
Kim Forrest, Chief Investment Officer, Bokeh Capital Partners LLC:
"This is not the first time the U.S. has been downgraded. I think it's a wake-up call. Although I understand that the future may be bad, we'll see what's going on. Because it's not news to inform investors. Especially when we talk about debt, it's bond investors, it's bond investors.
Dan Greenhaus, Chief Marketing Strategist at Solus Alternative Asset Management LP:
"Unlike anything we've seen in our lives, the United States is operating a huge peacetime budget deficit. But we all know. Moody isn't telling us anything new."
Max Gokhman, Deputy Chief Investment Officer, Investment Solutions, Franklin Templeton:
"The downgrade of the Treasury is not surprising, as the ruthless, unfunded fiscal massive scale can only accelerate with the current plans of Congress. In addition, the cost of debt will continue to spread as large investors (large investors), large investors in sovereignty and institutions gradually switch to other safe havens, which will gradually be placed in dangerous ranges and reduce the attractiveness of U.S. stocks."
Michael O'Rourke, Chief Market Strategist at Jonestrading:
“I expect the stock market to make a round of profits after a strong rebound. Back in 2011, when S&P was downgraded to the U.S., the Treasury initially sold out, but then there was a bid from safe haven and they gathered.”
Keith Lerner, Co-Chief Investment Officer of TRUIST Consulting Services:
"I don't think this is a game-changer, but it does provide some profit for investors. However, it does highlight the potential increase in the deficit and will focus more on that in the current discussion around tax bill extensions."
- With the assistance of Natalia Kniazhevich, Jessica Menton and Jeran Wittenstein.
(Updated aftermarket trading in paragraph 2.)
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