Stock Market Down as U.S. Downgraded for the First Time in 108 Years by Moody’s

Published: May 19, 2025 by Omor IE

Key Points

The stock market is down today after Moody’s downgraded the U.S. and updated its outlook to negative.
The U.S. no longer holds a top-tier credit rating from any of the three major institutions.
Treasury yields have already gone up, though slightly.
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Moody’s has held a “perfect” Aaa rating for the U.S. since 1917, but Moody’s downgraded the U.S. to Aa1 and changed its outlook from stable to negative. The rationale was that the federal debt “has risen sharply due to continuous fiscal deficits”. It also said that spending has only increased, whereas tax cuts have reduced government revenues.

Moody’s expects that budget flexibility will “remain limited”. In fact, it expects the deficit to widen and reach 9% of GDP by 2035, up from 6.4% in 2024 as debt servicing costs are rising fast.

This downgrade immediately sent down S&P 500 futures, and while the stock market opened red this morning, there has been a recovery that could take the market to positive levels regardless. The buying pressure in recent trading sessions has been very strong, with most of the negative news being pushed aside as Wall Street buys the dip.

Here’s a market update as of 10:30 AM (ET) today.

The S&P 500 is down 22.13 points, or 0.37%.
The Nasdaq Composite is down 112.73 points, or 0.58%.
The Dow Jones Industrial Average is down 45.73 points, or 0.11%.

What Moody’s Downgrade Means

The U.S. no longer holds a top-tier credit rating from any major agency. Fitch and S&P both downgraded the U.S. earlier, so it was only a matter of time until Moody’s followed suit, as the debt situation has only deteriorated.

The market reaction so far has been lukewarm, likely because the impact is quite limited. It is more of a headline risk than a fundamental shift since markets had already priced in these fiscal concerns. It just brings Moody’s in line with the consensus that both Fitch and S&P have already reached.

But the short-term impact could still rattle markets. Treasury yields have already gone up, with the 20-year Treasury yield above 5%. The 30-year Treasury also briefly crossed 5%, but it has since moved slightly lower. This makes borrowing slightly more expensive for the government.

Comments From the Federal Reserve

Fed’s Bostic made the following notable comments:

“The Moody’s downgrade will cut across economics and financial markets”.
“The downgrade will have implications for the cost of capital, and this could ripple through the economy.”
“The Fed will have to determine how the downgrade the effects an outlook that is already in flux.”
“I’m leaning much more into one rate cut this year.”
“I worry a lot about the inflation side of our mandate.”
“I am not hearing that large layoffs are imminent.”
“Tariffs on China are still economically significant.”

Fed’s Williams made the following comments: