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Economic Times
21-05-2025
- Business
- Economic Times
Moody's downgrade ripples through bond market, causes worries for stocks
Tired of too many ads? Remove Ads Tired of too many ads? Remove Ads Tired of too many ads? Remove Ads 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 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 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 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 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 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 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 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 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 Reserve officials on Monday said the Moody's downgrade could have repercussions for the U.S. economy by raising the cost of 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 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.
Business Recorder
12-05-2025
- Business
- Business Recorder
Wall Street Week Ahead: US stock market leadership eyed with crucial economic data on tap
NEW YORK: Investors head into a busy week for economic data watching if leadership in the US stock market could be moving away from defensive equity areas that indicates greater appetite for risk. While the benchmark S&P 500 index is down 3.7% in 2025, with stocks jolted by concerns about economic damage from President Donald Trump's tariffs, the consumer staples and utilities sectors, typically seen as more safe-haven areas of the market, are up this year 5% and 5.6%, respectively. Investors often seek shelter in those groups because their businesses are considered relatively immune to economic slowdowns while the stocks tend to offer strong dividends. 'If the market is in a risk-off mode, those sectors will continue to lead,' said Chuck Carlson, chief executive officer at Horizon Investment Services. More recently, however, as the US market has rebounded from its lows over the past month, groups like technology, industrials and consumer discretionary that are more associated with upbeat economic sentiment, or 'risk on' investor behavior, have been outperforming. Leadership moving from defensive sectors to those areas or groups tied to the economy such as financials or energy could be 'a sign perhaps that investors are regaining some animal spirits with regard to the prospects for the economy,' said Mark Luschini, chief investment strategist at Janney Montgomery Scott. 'That would be a tell of less caution being insinuated by investors,' Luschini said. While data so far this year has indicated resilience in the economy, sentiment surveys and other 'soft data' have been weak. 'What all macro investors are grappling with is, is this just a sentiment slowdown that's being reflected in a defensive tilt within equities, or is this something more fundamental?' said Matthew Miskin, co-chief investment strategist at Manulife John Hancock Investments. Economic data in the coming week provides a critical view. Tuesday's April consumer price index will give a fresh read on inflation trends, while April retail sales on Thursday offers the latest window into consumer spending. While economic fallout from the tariffs remains unclear, concerns abound that the import levies are poised to drive up prices and slow growth. If CPI is hotter than expected and retail sales miss estimates, it could raise concerns about 'stagflation,' Miskin said - a mix of sluggish growth and relentless inflation that could pressure stocks. Some investors said the Federal Reserve appeared to nod to such worries at its meeting this week. The central bank held interest rates steady and said the risks of both higher inflation and unemployment had risen. Aside from data, the coming week will see more US companies posting quarterly results, including retailing giant Walmart, whose report stands to offer insight into consumer behavior and the cost of imported goods. Stocks gained on Thursday after Trump and British Prime Minister Keir Starmer announced a trade agreement, the first since Trump triggered a global trade war with a barrage of levies on trading partners. Investors will continue to be fixated on the Trump administration's negotiations with other countries in hopes of more agreements after the president last month paused many of the heftiest tariffs for 90 days. 'Talks are starting to take place globally, and there is increased optimism that deals can be made before' the pause expires, CFRA strategists said in a note on Wednesday.
