Recently, concerns among Wall Street investors regarding Trump's tariffs have eased, leading to a strong rebound in the U.S. stock market last week, with the S&P 500 Index recovering annual losses for five consecutive days.
However, just as one wave subsides, another rises. On May 16 (Friday), the international credit rating agency Moody's announced a downgrade of the U.S. sovereign credit rating from Aaa to Aa1, while changing the outlook from 'negative' to 'stable'. This move means that U.S. sovereign debt has been completely excluded from the 'top credit' category by all three major rating agencies.
Affected by this news, the three major U.S. stock index futures opened lower and continued to decline today. $E-mini NASDAQ 100 Futures (JUN5) (NQmain.US)$ 、 $E-mini S&P 500 Futures (JUN5) (ESmain.US)$ Falling by about 1%, $E-mini Dow Futures (JUN5) (YMmain.US)$ A decrease of 0.75%.
In fact, this downgrade in rating can be traced.
In November 2023, Moody's maintained the United States' sovereign rating at Aaa, but has downgraded the rating outlook from "stable" to "negative." Generally speaking, such outlook adjustments indicate that the rating agency may take rating adjustment actions within the next 12 to 18 months.
Thus, the three major rating agencies have maintained a consistent sovereign credit rating for the United States, all granting the second highest rating. Previously, Standard & Poor's downgraded the U.S. rating from AAA to AA+ in August 2011, and Fitch Ratings also downgraded the U.S. rating from AAA to AA+ in August 2023.
It is worth mentioning that the previous two rating downgrades triggered significant market turbulence.
On August 5, 2011, when S&P downgraded the U.S. debt rating, the S&P 500 fell by 10.37% over 41 trading days, and after 12 months, it rose by 36%;
On August 1, 2023, when Fitch downgraded the U.S. debt rating, the S&P 500 fell by 10.31% over 58 trading days, and after 12 months, it rose by 37%.
From the above chart, it can be seen that after reaching the bottom, there was a significant rise within a year, which also confirms that each decline may be an opportunity for bottom fishing.
The downgrade by Moody's may trigger a major shake-up in the market; how can one achieve both offense and defense?
As the United States credit rating faces another downgrade, market volatility has surged; how can investors protect their "pocketbooks"? Futu News has compiled a list of common ETFs for mooers' reference:
According to pre-market trends, going long on the VIX Index,$iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX.US)$ Increased by over 4%, $ProShares Ultra VIX Short-Term Futures ETF (UVXY.US)$ 、 $2x Long VIX Futures ETF (UVIX.US)$ The increases are as high as 7% and 10%;
While in the inverse ETFs, such as $ProShares UltraPro Short QQQ ETF (SQQQ.US)$ up nearly 5%, $ProShares UltraPro Short S&P500 ETF (SPXU.US)$Increased by over 3%.
What does Wall Street think?
Eric Beiley, Executive Director of Steward Partners Wealth Management, stated: "This is a warning signal. The U.S. stock market is about to peak after experiencing a much-anticipated rebound. Moody's cut the credit rating, which may ultimately prompt fund managers to take profits after the significant rise in the stock market over the past month."
Ivan Feinseth, Chief Investment Officer of Tigress Financial Partners, stated: "U.S. Treasuries are considered the safest investment in the world. When the credit rating of the U.S. is downgraded, the impact on other countries' sovereign debt could be even more negative, as the U.S. serves as the benchmark. How this will affect the stock market in the coming weeks remains to be seen, but given the robust rise in the stock market recently, investors may remain cautious."
Dave Mazza, CEO of Roundhill Investments, stated: "While Moody's ultimately announced this news, the market may have already anticipated the decline in U.S. credit conditions. Unlike the shock of S&P downgrading the U.S. credit rating in August 2011, this downgrade occurs while the market was already vigilant about fiscal imbalances and tariff risks – indicating that the impact of this downgrade on the stock market may be smaller than initially suggested by the news reports."
Thomas Thornton, founder of Hedge Fund Telemetry LLC, stated: "This is unfavorable for the overall U.S. market. It's not as shocking as when S&P downgraded the U.S. AAA rating in 2011, when the market was already teetering. Bond market rates rose sharply in the late session, and rising interest rates faster, higher, and more violently have always been the risk that I am most concerned about."
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Editor/Somer
