[New York Stock Exchange] 'No U.S. Credit Shock' as Markets Close Slightly Higher... Treasury Yield Surge Also Eases

Started Lower but Closed Higher... Dow Up 0.32%
US Treasury Yield Surge Eases, Dollar Weakens
Wall Street: "Investors Already Knew the Risks... Nothing New"

Global credit rating agency Moody's downgraded the United States' sovereign credit rating from its highest level for the first time in 108 years, but on May 19 (local time), all three major indices on the New York Stock Exchange closed slightly higher. Although stocks, U.S. Treasuries, and the dollar all declined immediately after the opening bell, signaling a possible resumption of "Sell America," the impact on the market was limited because the negative factors had already been widely shared. Treasury yields rose slightly and the dollar fell, but the stock market managed to rebound and showed resilience.

Getty Images Yonhap News

On this day, the blue-chip Dow Jones Industrial Average (Dow Jones) closed at 42,792.07, up 137.33 points (0.32%) from the previous trading day. The S&P 500 index, which focuses on large-cap stocks, rose 5.22 points (0.09%) to 5,963.6, while the tech-heavy Nasdaq index gained 4.36 points (0.02%) to close at 19,215.46.

On May 16, Moody's cited a surge in federal government debt as it downgraded the U.S. sovereign credit rating from the highest "Aaa" to "Aa1." As a result, the United States has now lost its top credit rating from all three major rating agencies: Fitch, Standard & Poor's (S&P), and Moody's. Concerns have grown that, following President Trump's uncertain tariff policies and now the credit rating downgrade, "Sell America" could be reignited as dollar-denominated assets decline.

On the first trading day after the U.S. credit rating downgrade, stocks opened lower. U.S. Treasuries saw a wave of selling, especially in long-term bonds, causing yields to spike, with the 10-year yield briefly surpassing 4.5% and the 30-year yield exceeding 5%. The value of the dollar also jumped. However, since the federal debt issue was already a known risk, the market quickly showed resilience. The stock market rebounded, and the surge in Treasury yields subsided.

Ross Mayfield, investment analyst at Baird, commented, "The Moody's report did not contain anything new about the U.S. fiscal situation that every investor doesn't already know," adding, "It merely provided a brief pause for the market, but there was nothing in it to structurally alter our bullish outlook for the next 6 to 12 months."

Thomas Lee, managing partner and head of research at Fundstrat Global Advisors, said, "Moody's mentioned facts that we already knew, so there is nothing surprising," and added, "Since there is no additional information, none of the major bond managers will be surprised."

While stocks rose slightly, both Treasury prices and the dollar declined. The dollar index, which measures the value of the dollar against six major currencies, was down 0.71% from the previous trading day at 100.23.

However, as Treasury prices pared their losses, the sharp rise in long-term Treasury yields seen in the morning subsided by the afternoon. The benchmark 10-year U.S. Treasury yield, a global bond market benchmark, rose 1 basis point (1bp = 0.01 percentage point) from the previous session to 4.45%, while the 30-year yield also rose 1bp to 4.91%.

Some warn that the risks of U.S. debt should not be underestimated. Ray Dalio, founder of the world's largest hedge fund Bridgewater Associates, wrote on social media platform X (formerly Twitter) that "credit ratings only assess the risk of the government not repaying its debt, thereby underestimating credit risk," and warned, "(Credit rating agencies) do not include the risk that a country could print money to pay off its debt, causing bondholders to suffer losses from currency depreciation. The risks of U.S. government debt are much more serious."

By stock, Walmart fell 0.12%. The stock dropped early in the session after President Trump urged Walmart to withdraw its price hike plan, which had been announced in response to tariff burdens, but later pared its losses. Microsoft (MS) rose 1.01%, while Apple fell 1.17%. Nvidia closed up 0.13%.