Stock Market Today: Markets Discount Another U.S. Downgrade

Stocks gapped down at Monday's opening bell but resumed their recent historic recovery of the long-term up-and-to-the-right trend as investors, traders and speculators digested Moody's decision to cut its sovereign credit rating on U.S. government debt.

On Friday, Moody's became the third credit rating agency (CRA) to cut its rating on U.S. debt, from Aaa to Aa1.

Standard & Poor's downgraded the U.S. from AAA to AA+ in 2011. Fitch followed in 2023, lowering its sovereign rating on the U.S. from AAA to AA+ in 2023. The U.S. now has not a single triple-A rating.

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At the same time, rising interest rates have increased the cost of servicing U.S. government debt and adding to the fiscal strain. And debt, deficits and interest rates are forecast to move higher from here.

But Moody's also revised its outlook on the U.S. from "negative" to "stable."

Moody's, like S&P and Fitch, cites deteriorating fiscal health for its move. U.S. federal government debt and fiscal deficits are increasing.

Its forward-looking assumptions include "the role of the U.S. dollar as global reserve currency" and "effective monetary policy led by an independent Federal Reserve," as well as continuing "constitutional separation of powers among the three branches of government."

U.S. Treasury yields initially spiked on the Moody's move but settled down on Monday, with the yield on the 30-year Treasury bond rising as high as 5.037% from 4.897% on Friday before closing at 4.922% Monday.

The yield on the 10-year U.S. Treasury note climbed to 4.564% from 4.439% on Friday but closed at 4.455% today.

The U.S. Dollar Index (DXY), which tracks the dollar's relative strength against a basket of six foreign currencies including the euro, the British pound, the Canadian dollar, the Swedish krona and the Swiss franc, softened by 0.7% to 100.42. The DXY traded at a 52-week high of 110.18 on January 13.

By the closing bell, the blue-chip Dow Jones Industrial Average had added 0.3% to 42,791. The broad-based S&P 500 Index was up 0.1% to 5,963, and the tech-heavy Nasdaq Composite was basically flat at 19,215.

Find the cost of credit

"The Moody's credit rating downgrade of U.S. debt confirms that fiscal health issues remain significant," writes a team of analysts at the Wells Fargo Investment Institute, noting that Congress will debate the federal budget, extension of tax cuts and an increase to the debt ceiling over the next three months.

Still, the analysts "anticipate no change to the importance of the U.S. Treasury market to global investors." It will remain the "largest and most liquid in the world."

For consumers, though, the implications could be a little heavier.

"As Treasury securities are the reference rates for most U.S. borrowing, the added pressure of higher yields could also elevate interest rates on consumer loans, including mortgages and credit cards, impacting households and businesses," WFII analysts say.

Stablecoin bill is on the move

The price of bitcoin (BTC) surged as high as $106,847 on Monday in the aftermath of the Moody's downgrade and the consideration of the first major U.S. federal legislation to regulate the cryptocurrency industry.

The iShares Bitcoin Trust ETF (IBIT) – one of the best bitcoin ETFs to buy for exposure to this still-emerging space – was up 1.3%.

Coinbase Global (COIN) – the crypto exchange operator that officially joined the S&P 500 today but remains saddled with talk of an investigation by the Securities and Exchange Commission – bounced off its intraday lows but closed down 0.9%.

Fellow digital-focused online broker and trading platform Robinhood Markets (HOOD) was up 4.1%.

Strategy (MSTR), which has been transitioned by co-founder Michael Saylor from a software company into a bitcoin treasury company and announced the purchase of another $765 million of BTC, added 3.4%.

Block (XYZ), a fintech company that also holds bitcoin for investment purposes, was up 1.2%.

The U.S. Senate is currently debating the GENIUS Act, which would require issuers of stablecoins pegged to the U.S. dollar to hold reserves of assets such as U.S. Treasury bills, to follow anti-money-laundering and terrorism finance rules, and to provide stablecoin holders recovery priority in bankruptcy proceedings.

Stablecoins are a medium of exchange in the cryptocurrency market used for buying and selling cryptocurrencies and facilitating cross-border payments. They can also potentially support retail transactions.

The crypto market, including BTC, has a current market capitalization of approximately $3.3 trillion. Stablecoins have a collective value of approximately $250 billion.

LEI plunges

The Conference Board said its Leading Economic Index for the U.S. declined by 1.0% in April to 99.4. LEI was down 0.8% in March and fell by 2.0% during the six months ending in April, "the same rate of decline as over the previous six months," according to the Conference Board.

"The U.S. LEI registered its largest monthly decline since March 2023, when many feared the U.S. was headed into recession," observes Justyna Zabinska-La Monica of The Conference Board, who notes that the feared recession "did not ultimately materialize."

Still, she explains, most of the index components deteriorated. "Notably," Zabinska-La Monica writes, "consumers' expectations have become continuously more pessimistic each month since January 2025."

Building permits and average working hours in manufacturing turned negative in April, with "widespread weaknesses" apparent in six-month trends among components. But the six-month growth rate "did not fall enough to trigger the recession signal."

The Conference Board expects U.S. GDP growth will slow to 1.6% in 2025 from 2.8% in 2024, "with the bulk of the impact of tariffs likely to hit the economy in Q3."

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