US stock markets were in turmoil on Monday after ratings agency Moody’s downgraded the country’s credit rating, sending Treasury yields soaring and putting pressure on equities. The Dow Jones Industrial Average fell 300 points (-0.7%), the S&P 500 fell 1% and the Nasdaq fell 0.3%. The downgrade to Aa1 from Aaa by Moody’s, now in line with other major ratings agencies, is due to a widening budget deficit and high borrowing costs that are adding to the pressure to service existing debt.
The fall in bond prices has sent the 10-year bond yield soaring above 4.5%, while the 30-year bond yield has surpassed 5%. This has caused concern in the market, especially as the US economy is still struggling with uncertainty due to President Donald Trump’s tariff policies. High interest rates are also affecting home, car and credit card loans, thus suppressing consumer spending.
Technology stocks were hit hardest as investor sentiment on risk turned sour. Shares of Palantir and Tesla each fell nearly 4%, while Nvidia fell nearly 3%. This reflected concerns that higher bond yields could hurt economic growth and the profits of technology companies that are highly sensitive to interest rates.
The downgrades came after a stellar week on Wall Street, which saw a big jump in indexes following an interim trade deal between the US and China. The Nasdaq posted a weekly gain of more than 7%, the S&P 500 jumped 5% and the Dow rose 3%. However, with bond yields continuing to rise, traders are now counting on the next round of trade talks to maintain market momentum as long as interest rate fears do not overwhelm investor confidence.
