Stocks Bounce From Lows as Dip Buyers Wade Back In: Markets Wrap

(Bloomberg) — A renewed wave of dip buying fueled a rebound in stocks from session lows, with traders trying to look past the US downgrade by Moody’s Ratings that has sent bond yields climbing and weakened the US dollar.

The S&P 500 trimmed most of a slide that earlier topped 1%. Several strategists said any pullback could be an opportunity to wade back into the market amid bullish momentum fueled last week by the US-China tariff truce, with some big banks watering down their recession calls. Bonds also came well off session lows, following a slide that briefly put 30-year yields above 5%.

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“We view this latest credit action as a headline risk rather than a fundamental shift for markets,” said Mark Haefele at UBS Global Wealth Management. “So while the downgrade may lean against some of the recent ‘good news’ momentum, we do not expect it to have a major direct impact on financial markets.”

The US lost its last triple-A credit score from a major international ratings firm Friday, with Moody’s citing more than a decade of inaction by successive administrations and Congress to arrest a trend of large fiscal deficits. Treasury Secretary Scott Bessent on Sunday downplayed concerns, saying the government is determined to lower spending and grow the economy.

Thomas Lee at Fundstrat Global Advisors sees the Moody’s downgrade as a “largely non-event,” while adding that in case of any stock weakness, he would be “buying this dip aggressively.”

“There is no “surprise” here as Moody’s is citing facts we already know, the sizable US deficit,” Lee said. “And we doubt any major fixed-income manager is surprised. There is simply no incremental information here.”

The S&P 500 fell 0.3%. The Nasdaq 100 slid 0.5%. The Dow Jones Industrial Average wavered.

The bounce from session lows was led by defensive industries. Most big techs fell, with Apple Inc. and Tesla Inc. down over 1.5%. United States Steel Corp. rose on a news report that Nippon Steel Corp. plans to invest $14 billion in the company if the Trump administration approves their merger.

The yield on 10-year Treasuries advanced two basis points to 4.50%. The Bloomberg Dollar Spot Index fell 0.6%.

Investors should buy any dips in US stocks fueled by Friday’s credit rating cut, as the trade truce with China has reduced the odds of a recession, according to Morgan Stanley’s Michael Wilson.

The strategist sees a greater chance of a pullback in equities after the downgrade by Moody’s Ratings pushed 10-year bond yields above the key 4.5% level. However, “we would be buyers of such a dip,” Wilson wrote in a note.

“By our measures sentiment and positioning is still flashing an unambiguous contrarian buy signal,” said Max Kettner at HSBC. “We see a S&P 500 dip on Moody’s US downgrade as a potential opportunity.”

Meanwhile, Goldman Sachs Group Inc. strategist David Kostin said he expects the Magnificent Seven group of technology stocks to resume outperforming the broader S&P 500 on robust earnings trends. The cohort has slumped so far this year as investors dumped pricey US stocks.

Long-dated Treasuries, which had already been moving higher before Moody’s statement, briefly topped 5% amid investor concerns about a surging debt load. The US deficit has been in excess of 6% of gross domestic product for the past two years, an unusually high burden outside of economic recessions or world wars.

“The US credit rating downgrade adds to a long list of uncertainties that the stock market is weighing right now, including tariff, fiscal, inflation and economic ones,” said Clark Geranen, chief market strategist at CalBay Investments.

Traders also kept a close eye on the latest remarks from US policymakers for their views on the impacts of President Donald Trump’s trade war.

Federal Reserve Vice Chair Philip Jefferson said the central bank must ensure any price increases resulting from policy changes in Washington don’t lead to a persistent rise in inflation. Fed Bank of New York President John Williams said policymakers may need months to get a better understanding of the outlook for the economy. His Atlanta couonterpart Raphael Bostic struck a similar tone, sounding unwilling to move rates for some time.

In the latest geopolitical developments, Trump started his phone conversation with Russian counterpart Vladimir Putin on Monday, aiming to secure a ceasefire in the war in Ukraine that Moscow has shown no sign of accepting.

Corporate Highlights:

• Nvidia Corp. Chief Executive Officer Jensen Huang outlined plans to let customers deploy rivals’ chips in data centers built around its technology, a move that acknowledges the growth of in-house semiconductor development by major clients from Microsoft Corp. to Amazon.com Inc. 
• Nvidia and Abu Dhabi investment vehicle MGX are partnering with French firms to establish what they say will be Europe’s largest artificial intelligence data center campus, advancing French and Emirati ambitions in the field. 

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.3% as of 11:06 a.m. New York time
• The Nasdaq 100 fell 0.5%
• The Dow Jones Industrial Average was little changed
• The Stoxx Europe 600 was little changed
• The MSCI World Index was little changed
• Bloomberg Magnificent 7 Total Return Index fell 0.9%
• The Russell 2000 Index fell 1%

Currencies

• The Bloomberg Dollar Spot Index fell 0.6%
• The euro rose 0.8% to $1.1253
• The British pound rose 0.6% to $1.3363
• The Japanese yen rose 0.5% to 144.93 per dollar

Cryptocurrencies

• Bitcoin rose 0.4% to $104,504.39
• Ether rose 2.5% to $2,453.59

Bonds

• The yield on 10-year Treasuries advanced two basis points to 4.50%
• Germany’s 10-year yield declined one basis point to 2.58%
• Britain’s 10-year yield was little changed at 4.66%

Commodities

• West Texas Intermediate crude was little changed
• Spot gold rose 0.9% to $3,234.02 an ounce

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