Page One
The equity futures market is presaging a lower start for stocks, and Treasuries are largely to blame for that on account of a Moody's downgrade of the U.S. credit rating to Aa1 from Aaa that has sent yields higher.
The 2-yr note yield is up four basis points to 4.02%, and the 10-yr note yield is up 12 basis points to 4.56%.
Currently, the S&P 500 futures are down 61 points and are trading 1.0% below fair value, the Nasdaq 100 futures are down 293 points and are trading 1.4% below fair value, and the Dow Jones Industrial Average futures are down 229 points and are trading 0.6% below fair value.
News of the Moody's downgrade came after Friday's close, and it was attributed to the increase in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns. Treasury Secretary Bessent called the downgrade a "lagging indicator." Standard & Poor's and Fitch Ratings had previously downgraded the U.S. credit rating, so Moody's is third in line on this move.
Nevertheless, the action by Moody's has had some market-moving cachet. You can see it in Treasury yields, you can see it in the dollar, you can see it in mortgage rates, and you can see it in the equity futures.
What you don't see is any panicky selling in the stock market. Yes, stocks are indicated lower, but that might have been the case without the Moody's downgrade.
Stocks have been on an absolute tear over the past six weeks on easing trade tensions. The S&P 500 is up 23.2% from its April 7 low. It is not a stretch to think that the stock market would be subject to a period of consolidation after a move like that.
The mega-cap stocks and growth stocks have fueled that V-shaped reversal, so they are the ones that are pacing today's early retreat. Netflix (NFLX), for one, is down 1.8% on a JPMorgan downgrade to Neutral from Overweight.
What happens after today's open is the more meaningful focal point. Will participants quickly step in to buy the dip, or will the indices be allowed to backtrack in today's trade? There has been an indefatigable dip-buying mentality in the move off the April 7 lows.
While the Moody's downgrade has commanded most of the headline attention, it is competing this morning with the news that President Trump has suggested Walmart (WMT) "eat the tariffs" and that the House Budget Committee came back around to advance the large reconciliation bill in a 17-16 party-line vote. A full House vote on the bill is expected late this week, according to Politico.
Moody's pointed out that it does not think material multi-year reductions in mandatory spending and deficits will result from the current fiscal proposals under consideration. How the stock market handles that thought remains to be seen, but the Treasury market may just hold the answer.
In other developments, China reported a mixed batch of April data that included weaker-than-expected retail sales and fixed asset investment and stronger-than-expected industrial production. The Leading Indicators Report for April (Briefing.com consensus -0.7%; prior -0.7%) at 10:00 a.m. ET is the lone piece of U.S. economic data on today's docket.
