Overnight – Wall Street Shrugs as US Debt Warnings Mount
Stocks eked out a small gain overnight as retail investors shrugged off warnings from Ratings agency, Moodys, about the spiraling US Government debt
Moody’s has downgraded the U.S. sovereign credit rating from its highest “Aaa” to “Aa1,” marking the first time in over a century that the U.S. no longer holds a perfect rating from any major agency. The downgrade comes amid mounting concerns over the federal government’s $36 trillion debt and persistent annual deficits, which Moody’s says have reached levels much higher than those of similarly rated countries. This move follows earlier downgrades by S&P in 2011 and Fitch in 2023, and signals that neither successive administrations nor Congress have implemented effective measures to reverse the growing debt and interest burden.
The immediate market reaction saw Treasury yields climb and U.S. stock futures dip, as investors worried about the prospect of higher government borrowing costs and the potential ripple effects on consumer interest rates for mortgages and credit cards. The downgrade coincided with the advancement of President Donald Trump’s sweeping tax cut bill, which, if passed, is projected to add $3 trillion to $5 trillion to the national debt over the next decade. While the administration has criticized the downgrade and highlighted efforts to cut spending, such as through the Department of Government Efficiency, Moody’s remains skeptical that current policies will meaningfully reduce deficits in the long term.
Beyond the credit rating news, the economic landscape remains volatile. Major companies like Walmart are warning of price hikes due to tariffs, and the Federal Reserve has flagged policy uncertainty and trade tensions as headwinds for growth. Meanwhile, market attention is also focused on tech leaders like Nvidia, which continues to unveil new AI products, and on companies like Reddit, which recently saw its stock slip after a downgrade linked to competitive threats from AI-driven search engines. The Moody’s downgrade underscores the broader challenge facing U.S. policymakers: balancing economic stimulus and tax cuts with the need for sustainable fiscal management
ASX SPI 8384 (+0.87%)
The local market will see a bounce from the open as US futures have turned around about 1% since the close yesterday. The main focus for markets is the Reserve Bank’s interest rate decision this afternoon. Most economists expect the central bank to cut for the second time this year. The current expectation is a quarter of one percentage point cut, which would take the cash rate below 4 per cent for the first time since 2023
Company Specific
- Rio Tinto will invest up to $US900 million ($1.4 billion) in a Chilean lithium project, taking 49.9 per cent ownership in the process.
Moodys Downgrades US Credit Rating – what does it mean for equities?
Moody’s downgrade of the U.S. credit rating from “Aaa” to “Aa1” has immediate and longer-term implications for U.S. stocks. In the short term, the announcement triggered a decline in major stock indexes and a rise in Treasury yields, with the S&P 500 and related ETFs dropping about 1% in after-hours trading following the news
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