S&P 500 Erases 1% Slide as Dip Buyers Wade Back In: Markets Wrap

This content was published on May 19, 2025 - 23:13

5 minutes

(Bloomberg) — A renewed wave of dip buying fueled a rebound in stocks, with traders looking past the US credit downgrade by Moody’s Ratings that had earlier sent bond yields jumping. The dollar fell.

After a morning slide that topped 1%, the S&P 500 rose for a sixth straight day to close on the brink of a bull market. Several Wall Street strategists said any pullback could be a buying opportunity amid momentum fueled by the recent easing of global trade tensions. Treasuries also bounced across the curve, following a selloff that briefly drove 30-year yields above 5%.

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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 boost the economy.

“Monday’s price action answered the question: What would happen if Moody’s threw a downgrade party, and nobody came?” said Ian Lyngen and Vail Hartman at BMO Capital Markets. “As a referendum on the relevance of the rating agencies, investors are clearly siding with Bessent who commented that they are lagging indicators.”

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 rose 0.1%. The Nasdaq 100 was little changed. The Dow Jones Industrial Average added 0.3%.

The yield on 10-year Treasuries fell three basis points to 4.45%. A dollar gauge slid 0.6%. Oil edged up after briefly falling when Donald Trump said Moscow and Kyiv would begin talks “immediately” on ending the war in Ukraine.

“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.”

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.

For a more persistent fall in risk assets, Max Kettner at HSBC Holdings Plc says the market would need to enter what he defines as “Danger Zone.” Put simply, we’d need to see higher rate expectations and the US 10-year yield rise above 4.7%, according to the strategist.

“Until that is the case, we’d view any fall in risk assets as an opportunity to scale up exposure,” he noted.

Goldman Sachs Group Inc. strategist David Kostin expects the “Magnificent Seven” group of technology stocks to resume outperforming the broader S&P 500 on robust earnings trends.

While the earnings backdrop for the S&P 500 has stabilized in recent weeks, RBC Capital Markets strategists still anticipate further downward revisions for 2025.

A team lead by Lori Calvasina says “last week’s gap up in the stock market was largely deserved, but that upside from here may be limited without another major step-up improvement in broader macro expectations. They added that the market may be “a little ahead of itself from a fundamental perspective.”

“The search for fresh market catalysts begins,” said Chris Larkin at E*Trade from Morgan Stanley. “The S&P 500 ended last week up for the year, and just a little more than 3% below its all-time high. Whether it closes that gap in the near future is one thing, sustaining a rally past it is another.”

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