Investors apparently didn’t care too much about the U.S.’ credit rating downgrade when it came to Monday trading. Stocks pretty much stayed the same at the end of the day. The Dow Jones Industrial Average went up more than 130 points, a 0.32% increase. The S&P also closed up 0.09%, and the Nasdaq saw a gain of 0.02%. Moody’s recently became the third major ratings agency to downgrade U.S. debt from AAA to Aa1. These agencies help determine how likely a country is to pay off its debt. Despite this news, the U.S. government debt market has stayed relatively stable. The yield on the 10-year Treasury note, the government’s main loan asset, only went up a few points to 4.46%. This is still lower than the 4.59% it briefly hit last month.
Market experts at Capital Economics research consultancy noted that the downgrade didn’t cause much of a stir in the market. This reaction isn’t new, as similar downgrades in 2011 and 2023 had similar outcomes. While stock and bond buyers didn’t feel much impact on Monday, home buyers are facing higher mortgage costs due to the downgrade. The average rate on a 30-year fixed-rate loan rose to 7.04%, the highest since April 11. Moody’s explained that the U.S.’ ability to manage its finances has weakened over time, leading to higher yields. They mentioned that the U.S. hasn’t taken enough action to reduce its deficits and mandatory spending.
Individual stock buyers, mainly regular people rather than big companies, have been supporting the market and balancing out the declines. This group of buyers has been driving the market up since President Trump’s tariffs announcement. Despite the downgrade, retail traders seem uninterested in selling. However, experts like JP Morgan’s CEO Jamie Dimon believe that the market will likely go down further. The White House, on the other hand, isn’t concerned about the deficit and believes that Trump’s economic policies will generate enough growth to offset it. Some experts disagree and warn about the long-term consequences if global investors start to doubt the U.S.’ role in the world order.
In the short term, the U.S. remains a key player in the global economy. However, the bigger issue is what could happen in the long run. If global investors lose faith in the U.S., there could be significant consequences. Not really sure why this matters, but it seems like something to keep an eye on. Maybe it’s just me, but I feel like we should pay attention to how this situation unfolds. Who knows what could happen next? It’s definitely something to think about.
