U.S. stocks, U.S. bonds and the value of the U.S. dollar are all falling on Monday following the latest reminder that the U.S government seems to be hurtling toward an unsustainable mountain of debt.
The S&P 500 was 0.9% lower in early trading after Moody’s Ratings became the last of the three major credit-rating agencies to say the U.S. federal government no longer deserves a top-tier “Aaa” rating. The Dow Jones Industrial Average was down 222 points, or 0.5%, as of 9:35 a.m. Eastern time, and the Nasdaq composite was 1.3% lower.
Moody’s pointed to how the U.S. government continues to borrow more and more money to pay for its expenses, with political bickering making it difficult to either rein in Washington’s spending or raise its revenue in order to get its ballooning debt under more control.
It’s a blow because the downgrade essentially means investors globally should not lend money to Washington at such low interest rates. The yield on the 10-year Treasury jumped to 4.53% from 4.43% late Friday. That number shows how much in interest investors are demanding of the U.S. government to lend it money for 10 years.
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Perhaps even more joltingly, the yield on a 30-year Treasury leaped back above 5%, up from less than 4% in September. Shorter-term Treasurys, which move more on expectations for what the Federal Reserve will do with overnight interest rates than on what investors are feeling about the U.S. government and economy, moved by much less.
And if Washington has to pay more in interest to borrow cash to pay its bills, that could cause interest rates to rise for U.S. households and businesses too, in everything from mortgage rates to auto loan rates to credit cards. That in turn could slow the economy.
Nothing Moody’s said is new, of course, and critics have been railing against Washington’s inability to control its debt for many years. Investors have likely already accounted for most of the well-known issues, according to Brian Rehling, head of global fixed income strategy and other analysts at Wells Fargo Investment Institute. They’re expecting “limited additional market impact” following the initial reactions.
But the downgrade comes ahead of a key period for Washington, where it’s set to debate potential cuts in taxes that could suck away more revenue, as well as the nation’s limit on how much it can borrow. The downgrade also adds to a long list of concerns that have already been weighing on the market. Chief among them is President Donald Trump’s trade war, which has already forced investors globally to question whether the U.S. bond market and the U.S. dollar still deserve their reputations as some of the safest places to park cash during a crisis.
The U.S. economy so far seems to be holding OK despite the pressures of tariffs, but big companies have been warning recently they’re uncertain about the future. Walmart, for example, has said it will likely have to raise prices because of tariffs. That caused Trump over the weekend to criticize Walmart and demand it and China “eat the tariffs.”
Walmart stock fell 1.8% Monday.
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Other big retailers are on the schedule to report their latest quarterly results this upcoming week, including Target, Home Depot, Lowe’s and TJX Cos.
In stock markets abroad, indexes were mostly lower across Europe and Asia.
Chinese markets fell after the government said retail sales rose less in April than expected. Growth in industrial output slowed to 6.1% year-on-year from 7.7% in March.
That could mean rising inventories if production outpaces demand even more than it already does. But it also may reflect some of the shipping boom before some of U.S. President Donald Trump’s tariffs on Chinese goods took effect.
“After an improvement in March, China’s economy looks to have slowed again last month, with firms and households turning more cautious due to the trade war,” Julian Evans-Pritchard of Capital Economics said in a report.
In the foreign currency markets, the value of the U.S. dollar fell against everything from the euro to the Australian dollar.
