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Yomiuri Shimbun
21-05-2025
- Business
- Yomiuri Shimbun
Moody's Downgrade Ripples through Bond Market, Causes Worries for Stocks
Reuters file photo Signage is seen outside the Moody's Corporation headquarters in Manhattan, New York, U.S., November 12, 2021. NEW YORK, May 20 (Reuters) – Moody's U.S. debt downgrade is raising concerns that investors could reevaluate their appetite for U.S. government bonds, with the potential for rising yields to put pressure on stocks that are trading at elevated valuations. Moody's decision to downgrade the U.S. debt rating by a notch late last week due to mounting government debt and rising interest expenses has rekindled fears of a broader investor reappraisal of U.S. sovereign debt, which could drive up borrowing costs across the economy. 'Every time something like this happens, investors just think maybe they should shift a little more out of the U.S.,' said Campe Goodman, fixed-income portfolio manager at Wellington Management Company. Benchmark 10-year yields, which influence mortgage rates as well as borrowing costs for companies and consumers, rose to over 4.5% early on Monday but the selloff then moderated. Yields move inversely to prices. On Tuesday, the bond market selloff continued, with the 10-year yield last seen at 4.48%, slightly above where it closed on Monday. Longer-dated 30-year yields rose more sharply, hitting a high of over 5% on Monday, the highest since November 2023, and flirting with that level again on Tuesday. Higher yields have repercussions for stocks, analysts and investors say, as they represent higher borrowing costs for companies as well as greater investment competition from fixed income. Matthew Miskin, co-chief investment strategist at Manulife John Hancock Investments, said a rise in 10-year yields beyond 4.5% could be a headwind for stocks. 'I think what markets are grappling with, is if the 30-year is breaking out, does that mean the rest of the curve is next?' Miskin said. Over the past few years, stocks have come under pressure during some instances when Treasury yields moved above 4.5%, with sharply rising yields often negatively correlated with stock performance. One prominent example is late 2023 when the S&P 500 slid sharply as the 10-year yield ascended to 5%. In a note on Monday, Morgan Stanley equity strategist Michael Wilson said 4.5% on the 10-year yield has been 'an important level' for equity market valuation over the past two years, with stocks tending to face valuation pressure when 10-year yields breach that threshold. The price-to-earnings ratio for the S&P 500, based on earnings estimates for the next 12 months, was at 21.7 as of Monday, well above its long-term average of 15.8, according to LSEG Datastream. Wilson, however, said while a break above 4.5% in the 10-year yield 'can lead to modest valuation compression … we would be buyers of such a dip,' he said in the note, citing the recent U.S.-China trade truce as positive for equity markets. The downgrade has come as Republicans in Congress seek to approve a sweeping package of tax cuts aimed at boosting economic growth that at the same time could add trillions to the $36 trillion U.S. public debt pile, exacerbating concerns highlighted by Moody's over the U.S. fiscal trajectory. It also follows a detente in the trade war sparked by President Donald Trump's imposition of tariffs on U.S. trade partners. While tariffs are largely seen as being a drag for the economy, a recent trade breakthrough with China had sparked market optimism that their impact would be more muted than feared. 'You move from fears of stagflation, which was low growth and tariff-led inflation, to a better growth backdrop but probably not a better inflation or fiscal backdrop, as you still have this big tax bill getting pushed through,' said Ross Mayfield, investment strategist at Baird. Federal Reserve officials on Monday said the Moody's downgrade could have repercussions for the U.S. economy by raising the cost of capital. The ratings cut was unlikely to trigger forced selling of Treasuries, as major fixed-income indices only require securities to maintain an investment-grade rating or have no specific sovereign rating guidelines, analysts at BofA Securities said in a note on Monday. Still, it could cause the yield curve to steepen, they said, with long-dated yields rising due to worsening investor sentiment around the long-term prospects of U.S. debt. 'There could be a time when the bond market gets quite worried that we're continuing to stimulate an economy that's not weak,' Goodman said.
Yahoo
20-05-2025
- Business
- Yahoo
Moody's downgrade ripples through bond market, causes worries for stocks
By Davide Barbuscia and Lewis Krauskopf NEW YORK (Reuters) -Moody's U.S. debt downgrade is raising concerns that investors could reevaluate their appetite for U.S. government bonds, with the potential for rising yields to put pressure on stocks that are trading at elevated valuations. Moody's decision to downgrade the U.S. debt rating by a notch late last week due to mounting government debt and rising interest expenses has rekindled fears of a broader investor reappraisal of U.S. sovereign debt, which could drive up borrowing costs across the economy. "Every time something like this happens, investors just think maybe they should shift a little more out of the U.S.," said Campe Goodman, fixed-income portfolio manager at Wellington Management Company. Benchmark 10-year yields, which influence mortgage rates as well as borrowing costs for companies and consumers, rose to over 4.5% early on Monday but the selloff then moderated. Yields move inversely to prices. On Tuesday, the bond market selloff continued, with the 10-year yield last seen at 4.48%, slightly above where it closed on Monday. Longer-dated 30-year yields rose more sharply, hitting a high of over 5% on Monday, the highest since November 2023, and flirting with that level again on Tuesday. Higher yields have repercussions for stocks, analysts and investors say, as they represent higher borrowing costs for companies as well as greater investment competition from fixed income. Matthew Miskin, co-chief investment strategist at Manulife John Hancock Investments, said a rise in 10-year yields beyond 4.5% could be a headwind for stocks. "I think what markets are grappling with, is if the 30-year is breaking out, does that mean the rest of the curve is next?" Miskin said. Over the past few years, stocks have come under pressure during some instances when Treasury yields moved above 4.5%, with sharply rising yields often negatively correlated with stock performance. One prominent example is late 2023 when the S&P 500 slid sharply as the 10-year yield ascended to 5%. In a note on Monday, Morgan Stanley equity strategist Michael Wilson said 4.5% on the 10-year yield has been "an important level" for equity market valuation over the past two years, with stocks tending to face valuation pressure when 10-year yields breach that threshold. The price-to-earnings ratio for the S&P 500, based on earnings estimates for the next 12 months, was at 21.7 as of Monday, well above its long-term average of 15.8, according to LSEG Datastream. Wilson, however, said while a break above 4.5% in the 10-year yield "can lead to modest valuation compression ... we would be buyers of such a dip," he said in the note, citing the recent U.S.-China trade truce as positive for equity markets. The downgrade has come as Republicans in Congress seek to approve a sweeping package of tax cuts aimed at boosting economic growth that at the same time could add trillions to the $36 trillion U.S. public debt pile, exacerbating concerns highlighted by Moody's over the U.S. fiscal trajectory. It also follows a detente in the trade war sparked by President Donald Trump's imposition of tariffs on U.S. trade partners. While tariffs are largely seen as being a drag for the economy, a recent trade breakthrough with China had sparked market optimism that their impact would be more muted than feared. "You move from fears of stagflation, which was low growth and tariff-led inflation, to a better growth backdrop but probably not a better inflation or fiscal backdrop, as you still have this big tax bill getting pushed through," said Ross Mayfield, investment strategist at Baird. Federal Reserve officials on Monday said the Moody's downgrade could have repercussions for the U.S. economy by raising the cost of capital. The ratings cut was unlikely to trigger forced selling of Treasuries, as major fixed-income indices only require securities to maintain an investment-grade rating or have no specific sovereign rating guidelines, analysts at BofA Securities said in a note on Monday. Still, it could cause the yield curve to steepen, they said, with long-dated yields rising due to worsening investor sentiment around the long-term prospects of U.S. debt. "There could be a time when the bond market gets quite worried that we're continuing to stimulate an economy that's not weak," Goodman said.
Yahoo
16-05-2025
- Business
- Yahoo
Analysis-US stock market gains may slow after torrid rebound from tariff swoon
By Lewis Krauskopf NEW YORK (Reuters) -Market momentum following the U.S.-China trade truce has put stocks back in sight of record highs but wariness about the economic fallout from remaining tariffs and higher equity valuations could slow gains in the near term. The S&P 500 has soared 18% since hitting its low closing point for the year on April 8, erasing the benchmark index's losses for 2025 and putting it roughly 4% from its all-time peak reached in February. However, the S&P 500's price-to-earnings ratio has hit a two-month high while 2025 profit growth estimates have fallen since the start of the year. While U.S. tariffs seem less harsh than before, the import levies still could pressure corporate profits and consumer spending, causing unease about the economy, investors said. "Momentum is very strong, so it could carry markets up here," said Anthony Saglimbene, chief market strategist at Ameriprise Financial. "But I think for markets to maintain those levels it is going to be difficult because the environment is still uncertain." For now, fears of worst-case trade scenarios causing a recession are waning. The relief has fueled the market rebound after U.S. President Donald Trump's April 2 announcement of sweeping global tariffs set off dramatic volatility and sent stocks swooning. Equities got an extra kick higher this week from a 90-day U.S.-China truce reached over the weekend that slashed tariffs from over 100% on both sides, and cooled off a trade war between the world's two largest economies. The overall effective U.S. tariff on imports is down to 14% from 24% previously, according to JPMorgan economist Michael Feroli, but still above the rate of 2.3% in 2024. "The new, lower tariff rates are still a boost to inflation, and hence a depressant on real disposable income and real consumer spending," Feroli said in a note on Tuesday. With first-quarter earnings season winding down, U.S. companies have so far reported earnings well above expectations. However, analysts have trimmed full-year earnings estimates to a gain of 8.7% instead of 14% at the start of the year, according to LSEG IBES. "We've seen valuations make a roundtrip while earnings estimates have come down, so further gains are going to be harder to come by" in the short term, said Angelo Kourkafas, senior investment strategist at Edward Jones. The forward price-to-earnings ratio for the S&P 500, based on earnings estimates for the next 12 months, this week rose above 21 for the first time since early March, according to LSEG Datastream. That P/E ratio is well above the index's long-term average of 15.8 and a sharp rise from the 17.9 level it fell to at the market lows in April. "With the scope of this massive rally now, I don't know that I would chase the stock market here," said Chris Galipeau, senior market strategist at Franklin Templeton. "The risk/reward right now is not as good." Noting the market's strong rebound, UBS Global Wealth Management strategists on Tuesday downgraded U.S. equities to "neutral" from "attractive." "The economy will have to adjust to higher tariffs, and this could lead to a period of weaker economic data, which could be a modest headwind for stocks," UBS said in a note. However, some investors have turned more upbeat about stocks and the economy since the U.S.-China truce. Strategists at Goldman Sachs and Yardeni Research raised their targets this week for the S&P 500, with Yardeni eyeing 6,500 at year-end, about 10% above current levels. Odds of a U.S. recession in 2025 have fallen on online prediction market Polymarket to about 40% from 66% at the start of May. Resilient economic data have supported the rally, but upcoming reports could get more "squirrelly" as the impact of tariffs starts to become more evident, said King Lip, chief strategist at BakerAvenue Wealth Management. "In the short term, (the rally) seems a little extended," Lip said. "It seems like people believe maybe they got the all clear signal, and I'm not sure it's all clear." Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Reuters
16-05-2025
- Business
- Reuters
US stock market gains may slow after torrid rebound from tariff swoon
NEW YORK, May 16 (Reuters) - Market momentum following the U.S.-China trade truce has put stocks back in sight of record highs but wariness about the economic fallout from remaining tariffs and higher equity valuations could slow gains in the near term. The S&P 500 (.SPX), opens new tab has soared 18% since hitting its low closing point for the year on April 8, erasing the benchmark index's losses for 2025 and putting it roughly 4% from its all-time peak reached in February. However, the S&P 500's price-to-earnings ratio has hit a two-month high while 2025 profit growth estimates have fallen since the start of the year. While U.S. tariffs seem less harsh than before, the import levies still could pressure corporate profits and consumer spending, causing unease about the economy, investors said. "Momentum is very strong, so it could carry markets up here," said Anthony Saglimbene, chief market strategist at Ameriprise Financial. "But I think for markets to maintain those levels it is going to be difficult because the environment is still uncertain." For now, fears of worst-case trade scenarios causing a recession are waning. The relief has fueled the market rebound after U.S. President Donald Trump's April 2 announcement of sweeping global tariffs set off dramatic volatility and sent stocks swooning. Equities got an extra kick higher this week from a 90-day U.S.-China truce reached over the weekend that slashed tariffs from over 100% on both sides, and cooled off a trade war between the world's two largest economies. The overall effective U.S. tariff on imports is down to 14% from 24% previously, according to JPMorgan economist Michael Feroli, but still above the rate of 2.3% in 2024. "The new, lower tariff rates are still a boost to inflation, and hence a depressant on real disposable income and real consumer spending," Feroli said in a note on Tuesday. With first-quarter earnings season winding down, U.S. companies have so far reported earnings well above expectations. However, analysts have trimmed full-year earnings estimates to a gain of 8.7% instead of 14% at the start of the year, according to LSEG IBES. "We've seen valuations make a roundtrip while earnings estimates have come down, so further gains are going to be harder to come by" in the short term, said Angelo Kourkafas, senior investment strategist at Edward Jones. The forward price-to-earnings ratio for the S&P 500, based on earnings estimates for the next 12 months, this week rose above 21 for the first time since early March, according to LSEG Datastream. That P/E ratio is well above the index's long-term average of 15.8 and a sharp rise from the 17.9 level it fell to at the market lows in April. "With the scope of this massive rally now, I don't know that I would chase the stock market here," said Chris Galipeau, senior market strategist at Franklin Templeton. "The risk/reward right now is not as good." Noting the market's strong rebound, UBS Global Wealth Management strategists on Tuesday downgraded U.S. equities to "neutral" from "attractive." "The economy will have to adjust to higher tariffs, and this could lead to a period of weaker economic data, which could be a modest headwind for stocks," UBS said in a note. However, some investors have turned more upbeat about stocks and the economy since the U.S.-China truce. Strategists at Goldman Sachs and Yardeni Research raised their targets this week for the S&P 500, with Yardeni eyeing 6,500 at year-end, about 10% above current levels. Odds of a U.S. recession in 2025 have fallen on online prediction market Polymarket to about 40% from 66% at the start of May. Resilient economic data have supported the rally, but upcoming reports could get more "squirrelly" as the impact of tariffs starts to become more evident, said King Lip, chief strategist at BakerAvenue Wealth Management. "In the short term, (the rally) seems a little extended," Lip said. "It seems like people believe maybe they got the all clear signal, and I'm not sure it's all clear."
Yahoo
16-05-2025
- Business
- Yahoo
Analysis-US stock market gains may slow after torrid rebound from tariff swoon
By Lewis Krauskopf NEW YORK (Reuters) -Market momentum following the U.S.-China trade truce has put stocks back in sight of record highs but wariness about the economic fallout from remaining tariffs and higher equity valuations could slow gains in the near term. The S&P 500 has soared 18% since hitting its low closing point for the year on April 8, erasing the benchmark index's losses for 2025 and putting it roughly 4% from its all-time peak reached in February. However, the S&P 500's price-to-earnings ratio has hit a two-month high while 2025 profit growth estimates have fallen since the start of the year. While U.S. tariffs seem less harsh than before, the import levies still could pressure corporate profits and consumer spending, causing unease about the economy, investors said. "Momentum is very strong, so it could carry markets up here," said Anthony Saglimbene, chief market strategist at Ameriprise Financial. "But I think for markets to maintain those levels it is going to be difficult because the environment is still uncertain." For now, fears of worst-case trade scenarios causing a recession are waning. The relief has fueled the market rebound after U.S. President Donald Trump's April 2 announcement of sweeping global tariffs set off dramatic volatility and sent stocks swooning. Equities got an extra kick higher this week from a 90-day U.S.-China truce reached over the weekend that slashed tariffs from over 100% on both sides, and cooled off a trade war between the world's two largest economies. The overall effective U.S. tariff on imports is down to 14% from 24% previously, according to JPMorgan economist Michael Feroli, but still above the rate of 2.3% in 2024. "The new, lower tariff rates are still a boost to inflation, and hence a depressant on real disposable income and real consumer spending," Feroli said in a note on Tuesday. With first-quarter earnings season winding down, U.S. companies have so far reported earnings well above expectations. However, analysts have trimmed full-year earnings estimates to a gain of 8.7% instead of 14% at the start of the year, according to LSEG IBES. "We've seen valuations make a roundtrip while earnings estimates have come down, so further gains are going to be harder to come by" in the short term, said Angelo Kourkafas, senior investment strategist at Edward Jones. The forward price-to-earnings ratio for the S&P 500, based on earnings estimates for the next 12 months, this week rose above 21 for the first time since early March, according to LSEG Datastream. That P/E ratio is well above the index's long-term average of 15.8 and a sharp rise from the 17.9 level it fell to at the market lows in April. "With the scope of this massive rally now, I don't know that I would chase the stock market here," said Chris Galipeau, senior market strategist at Franklin Templeton. "The risk/reward right now is not as good." Noting the market's strong rebound, UBS Global Wealth Management strategists on Tuesday downgraded U.S. equities to "neutral" from "attractive." "The economy will have to adjust to higher tariffs, and this could lead to a period of weaker economic data, which could be a modest headwind for stocks," UBS said in a note. However, some investors have turned more upbeat about stocks and the economy since the U.S.-China truce. Strategists at Goldman Sachs and Yardeni Research raised their targets this week for the S&P 500, with Yardeni eyeing 6,500 at year-end, about 10% above current levels. Odds of a U.S. recession in 2025 have fallen on online prediction market Polymarket to about 40% from 66% at the start of May. Resilient economic data have supported the rally, but upcoming reports could get more "squirrelly" as the impact of tariffs starts to become more evident, said King Lip, chief strategist at BakerAvenue Wealth Management. "In the short term, (the rally) seems a little extended," Lip said. "It seems like people believe maybe they got the all clear signal, and I'm not sure it's all clear." Sign in to access your portfolio
