S&P Ends On Cusp of Bull Market as Traders Shrug Off Moody’s Cut

(Bloomberg) — US stocks closed little changed on Monday after paring a 1% drop while Treasuries gained, following a downgrade from Moody’s Ratings on the US government’s credit score.

The S&P 500 Index and Nasdaq 100 Index each eked out a 0.1% gain in New York after reversing their earlier losses. Treasuries also gained, after the 30-year yield briefly eclipsed 5% to reach its highest level since November 2023. The S&P 500 climbed for a sixth-straight session and is up nearly 20% from its April 8 lows, a whisker away from a bull market.

Moody’s announced Friday evening that it was stripping the US government’s top credit rating, dropping the country to Aa1 from Aaa. The agency blamed successive presidents and congressional lawmakers for a swelling budget deficit it said showed little sign of narrowing.

Traders dismissed the downgrade, and the retail crowd went on a record dip-buying spree. Individual investors purchased a net $4.1 billion in US stocks through 12:30 p.m. in New York, the largest level ever for that time of day — and broke the $4 billion threshold by noon for the first time ever, according to data compiled by JPMorgan Chase & Co. quantitative and derivative strategist Emma Wu.

“While the downgrade does underscore the US’s obvious fiscal issues, it’s an issue that’s very well understood by markets at this point,” said Ross Mayfield, investment strategist at Baird. “In reality, the headline is a good excuse for a tactically overbought market to take a breather after a massive rally off the early April lows, but in my opinion, it would take something more ominous to derail the broader rally.”

Wall Street strategists, who largely failed to anticipate the sharpest selloff since the Covid crash of 2020 earlier this year as President Donald Trump commenced his trade war, mostly dismissed the downgrade.

Morgan Stanley strategist Michael Wilson said investors should buy any dips in US stocks fueled by Friday’s cut, as the trade truce with China has reduced the odds of a recession. Across the Atlantic at HSBC Holdings Plc, chief multi-asset strategist Max Kettner said his team sees any fall in risk assets as an opportunity to scale up exposure.

“We view the US-China deal as a gamechanger for risk assets,” Kettner wrote Monday in a note to clients. “Does the Moody’s downgrade spoil the party? Not yet.”

“I don’t think it’s much of a surprise given the facts that the US has been on negative watch for quite some time, and that this follows similar actions from S&P and Fitch,” said Kevin Gordon, senior investment strategist at Charles Schwab & Co. “It just happens to be the case that this hit as sentiment got really stretched and a bit frothy, so I wouldn’t be surprised if this continues to put some downward pressure on stocks.”

Traders tuned into a chorus of remarks by Federal Reserve officials in various speaking engagements across the country for clues on the trajectory for interest rates. Two policymarkers, including New York Fed chief John Williams, suggested policymakers may not be ready to lower interest rates before September as they confront a murky economic outlook.

On the geopolitical front, Trump said that Moscow and Kyiv would begin talks “immediately” on ending the war in Ukraine after a phone call with Russian President Vladimir Putin on Monday. 

Over on Capitol Hill, a key House committee advanced Trump’s giant tax and spending package after Republican hardliners dropped a blockade against the legislation. 

In individual stocks on watch, Nvidia Corp. is in focus after chief executive officer Jensen Huang showed new technologies from faster chip systems to software aimed at sustaining the AI boom at Computex in Taiwan.

Alibaba ADRs dropped after the New York Times reported that the Trump administration has raised concerns over Apple Inc.’s potential deal with the Chinese tech giant. Reddit fell following a downgrade by Wells Fargo to equal-weight from overweight, with analysts saying that recent user disruptions are likely to be more permanent as Google “more aggressively” implements AI features in search.

–With assistance from Sagarika Jaisinghani.

©2025 Bloomberg L.P.