S&P500, Nasdaq Composite down as Moody's downgrade dents sentiment; bond yields rise

The downgrade followed a strong week for equities. Stocks had surged after a temporary trade agreement between the U.S. and China eased fears of an all-out tariff war.

U.S. stocks stumbled on Monday after Moody’s Investors Service downgraded the country’s credit rating, a move that sent bond yields climbing and rekindled investor caution.

The Dow Jones Industrial Average slipped 17 points, staying mostly flat, while the S&P 500 fell 0.3 percent and the Nasdaq Composite dropped 0.5 percent, with rate-sensitive tech shares bearing the brunt of the selling.

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The downgrade—Moody’s trimmed the U.S. sovereign rating from Aaa to Aa1—brings it in line with other rating agencies and adds to the growing concerns around Washington’s mounting fiscal deficits. The firm pointed to persistent budget shortfalls and the challenges of refinancing debt in a high-interest rate environment as key reasons behind the decision.

Bond yields spiked in response, with the 30-year Treasury yield climbing past 5 percent and the 10-year yield crossing 4.5 percent — levels that previously shook equity markets and forced the White House to soften its tone on trade.

The market opened on shaky ground, with Dow futures tumbling more than 300 points in early trade, before clawing back much of the decline by midmorning as yields pulled back from their session highs.

Among the laggards were heavyweight tech names vulnerable to rising borrowing costs. Tesla slid 3 percent, while Palantir and Apple each lost around 2 percent.

Still, some on Wall Street took the Moody’s cut in stride.

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The downgrade followed a strong week for equities. Stocks had surged after a temporary trade agreement between the U.S. and China eased fears of an all-out tariff war. The Nasdaq jumped over 7 percent last week, the S&P 500 rallied more than 5 percent, and the Dow added over 3 percent, with Friday’s 300-point surge pushing the index into the green for 2025.

Beyond macro jitters, stock-specific developments added to the cautious tone. Walmart shares slipped 1.7 percent after President Trump suggested the retailer should shoulder the burden of tariffs, while Treasury Secretary Scott Bessent said CEO Doug McMillon had agreed to absorb some levies.

Netflix dropped 2 percent after JPMorgan downgraded the stock to neutral, citing its sharp rally. Reddit fell nearly 7 percent after Wells Fargo flagged long-term risks from AI-powered search displacing traditional web traffic, cutting the stock to equal weight.

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