Contrary to concerns, the New York stock market withstood the negative impact of the U.S. credit rating downgrade on Monday.
After Moody’s lowered the U.S. credit rating from Aaa to Aa1 following the market close on May 16, many feared significant market turbulence when trading resumed on Monday. However, the financial markets only fluctuated initially and then stabilized.
All three major Wall Street indices ended the day in positive territory, albeit with modest gains.
Treasury bonds, however, faced selling pressure, leading to rising yields as prices declined.
Modest Rise After Initial Weakness
The three major indices managed to shake off early losses and close higher.
The Dow Jones Industrial Average, comprising 30 large blue-chip stocks, led the turnaround.
Despite initially falling 0.74% to 42,337.71, the Dow was the first to reverse course and move higher.
By the closing bell, the Dow had gained 137.33 points (0.32%) to finish at 42,792.07.
The S&P 500 added 5.22 points (0.09%), closing at 4,963.60, while the Nasdaq rose 4.36 points (0.02%) to end at 19,215.46.
However, the CBOE Volatility Index (VIX), often referred to as Wall Street’s fear gauge, also climbed, suggesting unstable investor sentiment. The VIX rose 0.90 points (5.22%) to 18.14.
Treasury Yields Climb
Treasury yields, which move inversely to bond prices, increased.
This upward movement in yields indicates growing investor wariness towards U.S. government debt as a safe-haven asset.
The yield on the benchmark 10-year Treasury note rose 0.012 percentage points to 4.451%, while the 30-year bond yield climbed 0.011 percentage points to 4.908%.
Early in the session, the 30-year Treasury yield briefly surpassed the 5% mark, jumping more than 0.1 percentage points.
It even reached 5.02%, its highest level since November 2023.
However, expectations that major Treasury investors, including banks, central banks, and large institutional investors, would continue to invest in U.S. Treasuries stabilized the market.
It was noted that for these large institutional investors, dropping from the top rating has little significance as long as the rating remains A-grade or higher, suggesting that the U.S. credit rating downgrade did not necessitate portfolio adjustments.
Mixed Performance Among Tech Giants
In the Magnificent Seven group of big tech stocks, only Tesla and Apple saw declines.
Apple continued its weakness amid concerns over the potential loss of 20 billion USD in annual fees from Google due to the Department of Justice’s lawsuit against Google.
If the court accepts the Department of Justice’s claims and the contract for Google to be the default search engine for Safari on Apple iPhones is terminated, Apple could lose over 20 billion USD in annual fees.
Apple shares closed down 2.48 USD (1.17%) at 208.78 USD.
Tesla, which had surged 17% last week and 24% since the start of May, fell more than 2% due to profit-taking. Tesla’s stock ended the day down 7.89 USD (2.25%) at 342.09 USD.
Nvidia, on the other hand, overcame early weakness to finish up 0.17 USD (0.13%) at 135.57 USD.
Microsoft gained 4.60 USD (1.01%) to close at 458.87 USD, while Alphabet added 0.44 USD (0.26%) to end at 167.87 USD.
Amazon rose 0.57 USD (0.28%) to 206.16 USD, and Meta Platforms inched up 0.09 USD (0.01%) to 640.43 USD.
