Wall Street retreats as Moody’s credit downgrade rattles bond and equity markets

The 30-year yield breached 5 percent, while the 10-year climbed past 4.5 percent—both benchmarks that investors closely track for their impact on borrowing costs, from mortgages to auto loans.

U.S. stocks opened the week on a shaky note, retreating sharply on Monday after Moody’s Investors Service downgraded the country’s credit rating, citing rising fiscal risks. The move triggered a surge in Treasury yields and weighed heavily on equity sentiment.

The Dow Jones Industrial Average slipped 162 points, or 0.4 percent, while the S&P 500 fell 0.7 percent. The tech-heavy Nasdaq Composite underperformed, shedding 0.9 percent as growth stocks bore the brunt of the bond market's reaction.

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Moody’s cut the country’s long-term issuer rating by one notch to Aa1, bringing it in line with S&P and Fitch. The downgrade reflects concerns over the government’s ballooning deficit and the cost of refinancing debt in an environment of elevated interest rates.

The announcement sparked a selloff in bonds, pushing yields to levels last seen during previous market stress episodes. The 30-year yield breached 5 percent, while the 10-year climbed past 4.5 percent—both benchmarks that investors closely track for their impact on borrowing costs, from mortgages to auto loans.

Tech names, which are typically more sensitive to interest rate volatility, led Monday’s slide. Tesla dropped 4 percent, Palantir fell 3 percent, and Nvidia eased 2 percent. Higher yields tend to compress valuations for growth stocks, which rely on future earnings.

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The downbeat session came just after markets closed out a stellar week. Investors had cheered a breakthrough in trade negotiations, with the U.S. and China agreeing to pause tariff hikes, lifting global risk appetite. The Nasdaq had rallied over 7 percent last week, while the S&P 500 gained more than 5 percent over five straight sessions. The Dow added over 3 percent, entering positive territory for the year after a 300-point surge on Friday.

But with bond yields back on the rise, the path forward for equities may hinge on how trade diplomacy evolves and whether market participants can stomach further volatility in interest rates.

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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