Morgan StanleyChief Investment Officer Mike Wilson pointed out that Moody's negative rating outlook could further weigh on U.S. Treasury Bond and trigger upward pressure on U.S. Treasury yields, which is the key variable currently having a substantial impact on the stock market. He emphasized, "If the 10-year US Treasury yield breaks through 4.5%, it will put some pressure on the stock market, but we tend to buy on dips during the correction."
Tom Lee, head of research at Fundstrat, called the rating downgrade an "insignificant event" and stated clearly, "If the market corrects as a result, we recommend buying decisively."
Judging from the market performance, although the three major stock indices experienced a short-term decline on Monday morning, they quickly broke away from their intraday lows. As of press time, the Dow Jones Industrial Average was down approximately 0.1%.S&P 500The index and the Nasdaq both fell 0.3%. Meanwhile, the 10-year US Treasury yield rose sharply by 9 basis points to 4.52%, while the 30-year US Treasury yield also rose by more than 10 basis points, breaking through the 5% mark.
The rating downgrade occurred after the U.S. stock market closed last Friday, making Moody's the third international rating agency to downgrade the U.S. sovereign credit rating since 2011. Previously, S&P downgraded the U.S. rating in 2011, and Fitch made the same decision in 2023. However, historically, rating downgrades have not provided sustained guidance for the U.S. economy or stock market.
Nicholas Colas, co-founder of DataTrek Research, wrote in a Research report on Monday: "Historically, both S&P and Fitch have subsequently downgraded U.S. stocks, indicating that rating agencies' decisions are not effective in predicting the future direction of the stock market."
Fundstrat's Lee also pointed out that Moody's downgrade did not bring any "incremental information". “Moody’s mention of the U.S. fiscal deficit has long been a market consensus; it’s not an ‘accident’ at all,” Lee stated frankly. “I believe no major bond institution would be surprised by this.”
It is worth noting that Moody's downgrade coincides with a shift in market sentiment from cautious to optimistic. Last week, the US and China reached a 90-day tariff suspension agreement, which boosted US stocks. In addition, the upward revision of corporate profit expectations has further boosted market confidence.
Morgan Stanley's Wilson had previously emphasized that if the Federal Reserve started cutting interest rates, it would provide another round of upward momentum for the stock market. However, with interest rate cuts looming and Moody's rating downgrade pushing up bond yields, the continued rebound in corporate earnings revisions has become the core driver supporting the stock market.
He stated, "In the short term, whether the S&P 500 can break through the key 6,100-point level will depend on whether the earnings correction momentum can continue to strengthen, because it currently appears that interest rate easing is still difficult to achieve."
