[UNITED STATES] U.S. stocks closed higher Monday following a wavering session, brushing off Moody’s downgrade of U.S. sovereign credit amid concerns that the nation's debt burden could expand further.
Yields on U.S. Treasury bonds surged early in the day, echoing the "Sell America" sentiment that rattled markets in April after former President Donald Trump announced sweeping tariffs. The initial reaction reflected renewed anxieties around fiscal stability.
Moody’s action, while noteworthy, aligns with previous moves by other credit rating agencies. Fitch Ratings cut the U.S. rating last August, citing deteriorating fiscal conditions and governance issues. S&P Global stripped the U.S. of its AAA rating back in 2011. Analysts emphasized that although these downgrades can spark short-term volatility, they have historically had limited long-term market impact, as U.S. debt remains a key benchmark for global investors.
Treasury yields later pulled back as markets processed the downgrade and found few surprises in Moody’s rationale. “After the knee-jerk reaction, the market settles down and focuses on the economic fundamentals,” said Subadra Rajappa, head of U.S. rates strategy at Societe Generale. She noted that while the downgrade highlights deep-seated fiscal challenges, these concerns were already widely acknowledged by market participants.
Attention is also turning to the Federal Reserve’s upcoming policy meeting, which could inject fresh volatility. The central bank is expected to keep interest rates unchanged, but investors will be closely watching for signals of potential rate cuts. Recent data showing easing inflation and a cooling job market have raised expectations of a more dovish Fed stance, which could further lower Treasury yields and support equities.
All three major U.S. indexes posted modest gains. The dollar weakened slightly against the euro and other leading currencies, although the move was less pronounced than during recent periods of market turbulence.
The euro held steady despite growing political uncertainty in Europe. French President Emmanuel Macron’s surprise call for snap elections has raised questions about fiscal stability in the eurozone’s second-largest economy. Meanwhile, the British pound gained strength after the UK and European Union reached key trade and defense agreements—offering a sign that post-Brexit tensions may be easing.
In contrast to earlier bouts of market unrest, the closely-watched volatility index remained largely stable Monday. Stocks have rebounded since Trump’s decision to pause some of his most aggressive tariff proposals.
Gold prices climbed more than one percent as investors sought refuge in the precious metal. Central bank buying—especially from emerging markets looking to diversify their reserves amid geopolitical strains—added further momentum to the rally. Analysts suggest gold could approach record highs if the Fed signals a shift toward more accommodative policy or if global risk aversion rises in the months ahead.
In Europe, major markets in London and Frankfurt reversed early losses to finish higher after UK and EU leaders secured a series of trade and security pacts at a landmark summit—the first since Britain’s contentious departure from the EU.
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