The US credit rating downgrade dragged down the stock market
19 May 09:32
on May 19, 2025, US stock markets reacted with a sharp drop to the decision of the Moody’s rating agency to downgrade the US credit rating from the highest Aaa to Aa1, "Komersant Ukrainian" reports citing Bloomberg.
Futures on the S&P 500 index fell by 1%, and on the Nasdaq 100 by 1.3%.
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The rating is not a decisive, but important factor
The reason for the downgrade was the growing US budget deficit, which, according to the agency, shows no signs of reduction. Moody’s joins Fitch Ratings and S&P Global Ratings, which have also previously downgraded the world’s largest economy below the highest level.
While Moody’s recognizes the significant economic and financial strength of the United States, the agency believes that these factors no longer fully compensate for the deteriorating fiscal performance. Treasury Secretary Scott Bessent downplayed concerns about the US public debt and the inflationary impact of tariffs, saying that the Trump administration is committed to reducing federal spending and growing the economy.
The yield on 10-year US Treasury bonds rose by three basis points to about 4.50%, and 30-year bonds by four basis points to 4.99%. Wells Fargo analysts predict a further increase in yields by 5-10 basis points in response to the downgrade.
The analysts point out that this decision will exacerbate “growing concerns about the loss of US exceptionalism” and make non-U.S. assets more attractive to global investors who are already reorienting from U.S. stocks to other markets, including European ones.
The US has lost confidence
The downgrade comes amid President Trump’s trade war, which is disrupting long-established partnerships and forcing the renegotiation of trade agreements. Discussions are also underway on new tax cuts that lack sufficient financial backing.
The President of the European Central Bank, Christine Lagarde, noted that the recent fall of the dollar against the euro, although it seems illogical, reflects “uncertainty and loss of confidence in US policy” among certain segments of financial markets.
Experts suggest that the downgrade may indicate that investors will demand higher yields on Treasuries. Although US assets have been rallying after previous downgrades by Fitch and S&P, the market may react differently this time around as the safe-haven status of US Treasuries and the dollar becomes less certain.
Asian markets also saw a drop in indices, despite the fact that China’s industrial production grew faster than expected in April, indicating the resilience of the world’s second largest economy.
Meanwhile, China reduced its holdings of US Treasuries in March, and the UK replaced it as the second largest foreign holder of these securities.
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