Wall Street is on edge about American investments again after receiving a significant warning about the safest of all safe havens: US debt. Moody’s downgraded America’s debt on Friday evening from its previously perfect AAA credit rating, the last of the three major credit rating agencies to strip US Treasuries of their flawless reputation. Explaining its rationale for lowering its credit rating on the United States for the first time since 1917, Moody’s cited ballooning US debt levels and Washington’s intransigence over budget deficit solutions. US stock futures fell sharply. Dow futures fell 350 points, or 0.8%. The broader S&P 500 futures were down 1%, and Nasdaq futures were 1.4% lower. Investors sold off US Treasuries. The benchmark 10-year yield, which trades in opposite direction to its price, rose to 4.5%. Meanwhile, gold, a traditional safe-haven, rose 1.4% to $3,232 a troy ounce. Investors in American assets have been on a roller coaster ride this year. Initial excitement over President Donald Trump’s business-friendly and tax-cut policies sent stocks surging to a record high in mid-February. But that fervor soon gave way to extreme fear over Trump’s trade policy, sending investors pouring out of American assets in what market observers called the “sell America” trade. That sent bonds and the dollar tumbling and stocks an inch away from a bear market in April. In mid-April, however, a pause in trade tensions renewed faith in American investments and sent stocks and bonds surging again. But then came Friday’s debt downgrade. Treasury Secretary Scott Bessent attempted to reassure market participants that the credit rating downgrade was built on outdated information, echoing the refrain from former Treasury Secretary Janet Yellen, who said something similar when Fitch Ratings downgrade America’s debt rating in 2023. Bessent on Sunday told CNN that he “does not put much credence in the Moody’s” downgrade. When pressed by CNN’s Jake Tapper about whether Trump’s “one, big, beautiful bill” tax cut proposal would further exacerbate America’s debt crisis by reducing revenue, Bessent said the bill would grow America’s economy to lower its surging debt-to-gross-domestic-product ratio. America’s debt-to-GDP ratio was 92% in the second quarter of 2011 when S&P became the first credit-rating agency to downgrade US debt. It is now 123%, according to the US Treasury. But market analysts say Moody’s downgrade could send shockwaves through Wall Street again. “Budget-busting revenue estimates for the big, beautiful bill down in Washington appear to be the problem,” said Chris Rupkey, chief economist at FwdBonds. “When S&P first tried this US downgrade also late on a Friday, on August 5, 2011, it was quite a shock.” Rupkey noted stocks fell nearly 7% the Monday after America’s first downgrade, but the reaction was far more muted when Fitch downgraded the debt 12 years later. Debt hawks said Moody’s downgrade should serve as a warning about America’s unsustainable debt load. “For those looking for a signpost to tell us when to stop adding to our national debt, they should look no further than Moody‘s downgrade,” said Michael Peterson, CEO of the Peter Peterson Foundation, which advocates for America’s fiscal stability. “It’s unacceptable for a great country like America to harm its own credit rating.” What ‘sell America’ could look like If Wall Street returns to “sell America,” it may not be pretty. In the late winter and early spring, investors took money out of US stocks and even traditional safe havens like government bonds, pouring them into gold and foreign stocks. Treasury yields, which trade in the opposite direction to prices, surged. And spot gold prices rose above $3,000 a troy ounce for the first time in history in March. Traders grew increasingly concerned that Trump’s policies could inflict serious damage on the economy. Despite Trump’s insistence that stocks were falling because of the inflationary problems inherited from former President Joe Biden, the market had boomed after Trump’s November election in hopes that his promised tax cuts and deregulation would fuel another economic boom. But Trump in the months before he took office began threatening massive tariffs on America’s biggest trading partners. The Dow, which was near its record high when Trump started posting messages on Truth Social about tariffs on November 25, hit one more record high a week later and then tumbled. The S&P 500 fell nearly 20% between its mid-February all-time-high and Trump’s April 9 pause of his April 2 “Liberation Day” tariffs. Now, investors have at least one more thing to worry about: America’s out-of-control debt. But they may have to fret about the trade war once again. Bessent on Sunday told CNN that if dozens of countries that had been hit with Trump’s “reciprocal” tariffs fail to reach a trade deal with the administration, they’ll face tariffs as high as 50%, the same tariffs Trump unveiled at his “Liberation Day” announcement. “President Trump has put them on notice that if you do not negotiate in good faith, you will ratchet back up to your April 2 level,” Bessent said.
‘Sell America’ is back on after a massive debt warning
TruthLens AI Suggested Headline:
"Moody's Downgrades US Debt, Reviving Concerns Over American Investments"
CNN
7.0
TruthLens AI Summary
Wall Street has once again become uneasy about American investments following a significant downgrade of the United States' credit rating by Moody’s. The agency reduced the US debt rating from its previous AAA status, making this the first downgrade since 1917. Moody’s decision was attributed to the soaring levels of US debt and the government’s inability to address the budget deficit effectively. Consequently, US stock futures experienced a sharp decline, with the Dow futures dropping by 350 points, or 0.8%, and broader market indices like the S&P 500 and Nasdaq also falling. The downgrade prompted investors to sell off US Treasuries, resulting in a rise in the benchmark 10-year yield to 4.5%. In contrast, gold prices, often seen as a safe haven during market turmoil, increased by 1.4% to $3,232 per troy ounce, reflecting a flight to safety among investors wary of the US debt situation.
The market has seen a tumultuous year, oscillating between optimism and fear. Initially, President Donald Trump’s tax cuts and business-friendly policies drove stocks to record highs, but concerns over trade policies led to a significant sell-off in American assets, prompting what analysts termed the 'sell America' trade. Despite a brief resurgence in confidence following a pause in trade tensions in April, the recent downgrade has reignited fears about the sustainability of US debt levels. Treasury Secretary Scott Bessent attempted to downplay the downgrade, asserting that it was based on outdated information and suggesting that Trump's proposed tax cuts would stimulate economic growth, thereby alleviating the debt burden. However, analysts warn that this downgrade could have long-lasting impacts on investor sentiment, with some calling it a warning sign for fiscal responsibility in the US. If a renewed 'sell America' trend occurs, it could lead to significant withdrawals from US stocks and bonds, pushing investors toward gold and foreign markets, reminiscent of earlier market reactions to financial instability.
TruthLens AI Analysis
The article highlights the significant downgrade of the United States' credit rating by Moody's, a development that has sent shockwaves through financial markets. This downgrade is particularly alarming as it marks the first reduction from a AAA rating since 1917. The implications of this downgrade are manifold, affecting investor confidence, market stability, and the broader economic landscape.
Market Reactions and Investor Sentiment
Investors have reacted swiftly to the news, with stock futures plummeting sharply and treasury yields rising. The downgrade has rekindled fears reminiscent of earlier financial turmoil, suggesting a fragile investor sentiment regarding US assets. The article mentions previous fluctuations in investor confidence, illustrating a pattern of rapid shifts influenced by political decisions and economic policies, particularly under the Trump administration. This history of volatility may lead to a more cautious approach among investors moving forward.
Government Responses and Public Perception
Treasury Secretary Scott Bessent's attempt to downplay the downgrade reflects a broader governmental strategy to maintain public confidence. By framing the downgrade as based on outdated information, the administration aims to mitigate panic and reassure markets. This effort to control the narrative suggests a focus on maintaining stability in the face of criticism and economic uncertainty. However, such reassurances may also be seen as insufficient in the eyes of investors who prioritize objective financial indicators.
Potential Implications for the Economy
The downgrade could have significant ramifications for the US economy. A loss of confidence in US debt may lead to increased borrowing costs and a potential slowdown in economic growth. Furthermore, the article implies that this situation could push investors toward alternative assets, such as gold, which has already seen a price increase. The shift in investment strategies could reshape market dynamics and affect the overall economic outlook.
Community Reactions and Target Audiences
The article resonates particularly with investors and financial analysts who are closely monitoring the implications of such financial news. It reflects concerns from segments of the population that prioritize economic stability and growth, potentially alienating those who may view government assurances with skepticism. The focus on high-stakes financial analysis may also appeal to audiences engaged in trading and investment activities.
Global Context and Power Dynamics
In a broader context, the downgrade raises questions about the United States' position in the global economic hierarchy. As other nations reassess their financial relationships with the US, this could alter the balance of power in international markets. The article suggests that the timing of the downgrade is crucial, as it coincides with ongoing global economic challenges and geopolitical tensions.
Reliability and Manipulation Potential
While the article presents factual information regarding the downgrade and its immediate effects on the market, it also serves to evoke a sense of urgency and concern, which could be seen as a form of manipulation. The language used and the emphasis on market reactions might influence reader perceptions and decisions. Overall, while the core facts are reliable, the framing may lead to a heightened sense of alarm.
The article effectively captures the complexities surrounding the US debt downgrade while also reflecting broader economic anxieties. The potential for market manipulation through language and emphasis raises questions about the motivations behind such reporting.