Traders work on the floor of the New York Stock Exchange during morning trading on May 07, 2025 in New York City.
Michael M. Santiago | Getty Images News | Getty Images
Stocks tumbled on Monday as a downgrade of the U.S.’ credit rating by Moody’s caused Treasury yields to spike.
The Dow Jones Industrial Average traded 162 points lower, or 0.4%. The S&P 500 dipped 0.7%, while the Nasdaq Composite shed 0.9%.
Moody’s on Friday bumped the country’s rating down by one notch to Aa1 from Aaa, bringing the agency in line with its peers. The firm cited the financing challenges tied to the federal government’s growing budget deficit and the ramifications of rolling over existing U.S. debts in a period of high borrowing costs.
The debt downgrade pressured bond prices, sending yields higher, at a time when the economy is already under pressure from President Donald Trump’s unfolding tariff policy. The 30-year U.S. bond yield traded above 5% on Monday and the 10-year yield topped 4.5%, levels that pressured equity markets last month and helped cause Trump to back off his stiffest tariffs. Loans for houses, cars and credit cards track these rates.
“The fundamental factor of less foreign demand for them and the growing size of the pile of debt that needs to be constantly refinanced is not going to change,” said Peter Boockvar, chief investment officer at Bleakley Financial Group, of the U.S. rating change. Moody’s downgrade “is symbolic in the sense that here’s a major rating agency that’s calling out that the U.S. has strained debts and deficits.”
Leading the losses Monday were key tech stocks that would be hurt the most if rising yields slowed the economy and hurt investors’ risk appetites. Palantir was off by 3%. Tesla shed 4%. Nvidia was off by 2%.
The downgrade comes after a winning week on Wall Street as investors cheered the White House’s deal with China to temporarily slash levies. The agreement was seen as a breakthrough for global trade after Trump’s initial plan for broad and steep import taxes was unveiled last month.
The technology-heavy Nasdaq Composite led the way last week, surging more than 7%. The broad S&P 500 jumped over 5% and posted a five-day winning streak. The blue-chip Dow rallied more than 3% last week. Friday’s gain of over 300 points pushed the 30-stock average into positive territory for 2025.
Traders now see more trade deals as key to keeping the stock market comeback going, if yields don’t scare away investors first.