Debt Rating Downgrade May Lead To Pullback On Wall Street

(RTTNews) - The major U.S. index futures are currently pointing to a lower open on Monday, with stocks likely to give back ground after moving sharply higher over the previous week.

Traders may look to cash in on last week's rally, which lifted the major averages to their best closing levels in over two months.

Last Monday's news of a U.S.-China trade deal temporarily slashing steep tariffs on each other's goods generated considerable buying interest that carried over throughout much of the week.

Negative sentiment may also be generated in reaction to news that Moody's has downgraded the U.S. debt rating by a notch to Aa1 from Aaa.

Moody's said the downgrade reflects the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns.

After initially showing a lack of direction, stocks moved mostly higher over the course of the trading session on Friday. The major averages all climbed firmly into positive territory after closing mixed for two straight sessions.

The major averages ended the day near their highs of the session. The Dow advanced 331.99 points or 0.8 percent to 42,654.74, the S&P 500 climbed 41.45 points or 0.7 percent to 5,958.38 and the Nasdaq rose 98.78 points or 0.5 percent to 19,211.10.

For the week, the tech-heavy Nasdaq soared by 7.2 percent, the S&P 500 spiked by 5.3 percent and the Dow surged by 3.4 percent.

Stocks continued to benefit from recent upward momentum, which has propelled the major averages to their best closing levels in over two months.

Monday's news of a U.S.-China trade deal temporarily slashing steep tariffs on each other's goods generated considerable buying interest that has carried over throughout much of the week.

While uncertainty remains about the U.S. and its trade partners reaching deals that permanently lower tariffs, traders have continued to express optimism.

Meanwhile, traders largely shrugged off preliminary data from the University of Michigan showing consumer sentiment in the U.S. has unexpectedly continued to deteriorate in the month of May.

The University of Michigan said its consumer sentiment index dipped to 50.8 in May after slumping to 52.2 in April. Economists had expected the index to inch up to 53.4.

With the unexpected decrease, the consumer sentiment index has fallen to its lowest level since hitting 50.0 in June 2022.

The report also said year-ahead inflation expectations surged to 7.3 percent in May from 6.5 percent in April, reaching the highest level since a matching figure in November 1981.

Biotechnology stocks moved sharply higher over the course of the session, driving the NYSE Arca Biotechnology Index up by 2.5 percent.

Significant strength also emerged among healthcare stocks, as reflected by the 1.9 percent gain posted by the Dow Jones U.S. Healthcare Index.

Utilities, housing and pharmaceutical stocks also saw notable strength on the day, moving higher along with most of the other major sectors.

Commodity, Currency Markets

Crude oil futures are slipping $0.25 to $62.24 a barrel after climbing $0.87 to $62.49 a barrel last Friday. Meanwhile, after tumbling $39.30 to $3,187.30 an ounce in the previous session, gold futures are jumping $58.40 to $3,245.60 an ounce.

On the currency front, the U.S. dollar is trading at 144.94 yen versus the 145.70 yen it fetched at the close of New York trading on Friday. Against the euro, the dollar is trading at $1.1262 compared to last Friday's $1.1163.

Asia

Asian stocks ended lower on Monday as Moody's downgrade of the U.S. credit rating reinforced Wall Street's growing worries over the U.S. sovereign bond market.

Moody's cut the credit rating of the U.S. by a notch to Aa1 from the highest triple-A rating, citing the government's massive budget deficit and high interest rates.

The U.S. dollar dipped, while the yield on the 10-year U.S. Treasury rose to 4.52 percent from 4.44 percent amid renewed trade tensions.

U.S. Treasury Secretary Scott Bessent said in television interviews on Sunday that President Donald Trump is employing "strategic uncertainty" as a negotiating tactic in his trade talks and that tariffs will be imposed at the rate he threatened last month if countries do not negotiate in "good faith" on deals.

Gold prices rose about 1 percent in Asian trading due to trade and U.S. debt concerns. Oil declined on demand concerns after official data showed a slowdown in the pace of Chinese industrial output and retail sales.

Chinese markets ended little changed as mixed economic readings highlighted a fragile recovery. Industrial output held up in April, but retail sales and investment disappointed as firms and households turn more cautious due to the trade war, official data revealed.

China's Shanghai Composite Index finished marginally higher at 3,367.58, while Hong Kong's Hang Seng Index ended with a negative bias at 23,332.72.

Alibaba Group Holding shares fell 3.4 percent after reports that U.S. officials are scrutinizing a potential Apple-Alibaba deal to integrate AI features into iPhones in China.

Japanese markets fell notably as the yen strengthened on expectations of a Bank of Japan rate hike.

Trade tension also weighed as China announced it would impose up to 75 percent of anti-dumping duties on plastic imports from the United States, European Union, Taiwan and Japan.

The Nikkei 225 Index dropped 0.7 percent to 37,498.63, while the broader Topix Index settled marginally lower at 2,738.39, extending losses for a second straight session.

Seoul stocks closed markedly lower, with the Kospi falling 0.9 percent to 2,603.42. Tech and auto shares paced the decliners, with Samsung Electronics falling 1.8 percent, SK Hynix declining 2.5 percent and Hyundai Motor giving up 1.4 percent.

Australian markets ended lower to snap an eight-session winning streak, dragged down by banks and miners ahead of the Reserve Bank of Australia's interest-rate decision this week.

The benchmark S&P/ASX 200 Index fell 0.6 percent to 8,295.10, while the broader All Ordinaries Index closed 0.6 percent lower at 8,524.80.

Across the Tasman, New Zealand's benchmark S&P/NZX-50 Index tumbled 1.2 percent to 12,629.07.

Europe

European stocks traded lower on Monday as investors reacted to Moody's downgrade of the U.S. credit rating and mixed economic data from China.

The British pound rallied after the U.K. reached an agreement with the European Union to reset relations.

"There is an agreement ... on the different texts and parallel aspects of the EU-UK Summit," one EU diplomat reportedly said.

While the German DAX Index is just below the unchanged line, the U.K.'s FTSE 100 Index is down by 0.5 percent and the French CAC 40 Index is down by 0.8 percent.

Volkswagen has plunged after shareholders renewed their criticism of the automaker's corporate governance at the carmaker's virtual annual general meeting on Friday.

Dutch tech investor Prosus has also moved to the downside as it launched its cash offer to acquire delivery giant Just Eat Takeaway.

Meanwhile, budget carrier Ryanair has jumped after signaling robust demand for travel this summer.

Diageo has also advanced as the world's leading spirits company unveiled a $500 million savings plan.

U.S. Economic News

The Conference Board is scheduled to release its report on leading economic indicators in the month of April at 10 am ET. The leading economic index is expected to decrease by 0.8 percent in April after falling by 0.7 percent in March.

At 1:15 pm ET, Dallas Federal Reserve President Lorie Logan is due to give remarks at the 2025 Financial Markets Conference hosted by the Federal Reserve Bank of Atlanta.

Minneapolis Federal Reserve President Neel Kashkari is scheduled to participate in a conversation before the Minnesota Young American Leaders Program at the University of Minnesota at 1:30 pm ET.