Latest news with #downgrade
Forbes
6 days ago
- Business
- Forbes
Recessions Signs Rise; Moody's Turns The Bond Market Blue
For the week, the large cap equity indexes (S&P 500, Nasdaq, and the DJIA) were down in the -2.5% range, with small cap stocks (Russell 2000) down a bit more (-3.5%) (see table). For the year to date, the results are mixed – pretty much near the flat line except for the -5.26% performance of small cap Russell 2000. Equity Markets Universal Value Advisors Six of the large cap tech Magnificent 7 were also down for the week with GOOG being the exception. These are all off significantly from their peak levels with AAPL, TSLA and GOOG off double digits in 2025. Only MSFT and META are positive for the year. And with a weakening economy, the outlook for equities is clouded. Magnificent 7 Universal Value Advisors The big financial news of the week was the Moody's downgrade of U.S. debt from AAA to AA+, now joining Fitch and S&P. All three ratings agencies have now lowered the credit of the U.S. government to less than AAA. It is noteworthy that S&P lowered their rating 14 years ago (in 2011). Clearly, the iterations of Congress and the Executive Branch since that S&P downgrade paid little attention as business as usual prevailed. And, given the current reaction, or lack thereof, it doesn't appear that the ratings downgrade will have any significant impact on the fiscal process. That is, business as usual will continue with future deficits as far as the eye can see! In our view, unless something changes, which appears unlikely, we could see more such downgrades. It appears that the dollar's status as the world's reserve currency has given the U.S. an automatic pass when it comes to fiscal responsibility. It is also noteworthy that even after the Moody's downgrade, the U.S. still has the worst balance sheet in terms of Deficit/GDP and Gross Debt/GDP of all other countries with the AA+ rating. This implies that, unless Washington D.C. takes this downgrade to heart, which appears to be highly unlikely, future downgrades are possible (if not probable). As an aside, we wonder why it took Moody's so long to follow what S&P clearly saw 14 years ago. As seen from the chart, the latest University of Michigan's Consumer Sentiment Index and their Index of Consumer Expectations are now at or below levels last seen in the Covid Recession three years ago. Consumer Sentiment & Consumer Expectations Universal Value Advisors Currently, there are no new stimulus checks in the works. And the U.S. consumer appears to be out of gas as they have depleted their savings (the savings rate currently is 3.9%; 9% is the norm). According to Wall Street Economist David Rosenberg, if not for the savings drawdown, GDP growth would be close to 0%. Recent data confirm that the economy is slowing increasing the probability of a Recession. Initial unemployment claims haven't spiked. They have been steady in the 220K-240K range for the last few months. What is of concern is the number of Continuing Unemployment Claims. They are now over 1.9 million. This implies that those looking for jobs are finding it more and more difficult to land one. This also implies that, while companies appear to be hoarding their existing staff, they have significantly slowed down their new hiring. This is a significant leading indicator – one the Fed should be paying attention to. This is where there is good news. In April, the CPI rose +0.2% from March's level. On a year/year basis, it was up +2.3% (vs. +2.4% in March) – so getting close to the Fed's 2% target. The three-month trend was at a +1.6% annual rate, and, according to Economist David Rosenberg's daily blog (May 23rd Breakfast with Dave) if current rents were used in the CPI calculation instead of rents lagged nearly a year, the three-month trend would have been a +0.7% annual rate, the slowest rate since October 2020 (Covid Recession). Note that this index showed a 3-month trend of +3.3% last December and +6.0% a year ago. Equities were down slightly for the week, and struggling for the most part on a year-to-date basis. Not surprisingly, it's a similar story for the Magnificent 7 tech stocks. Only Microsoft and Meta are positive for the year, with Apple, Tesla and Google down double digits with Amazon not far behind. A negative bias in the financial markets isn't surprising as Moody's downgraded U.S. government debt to AA+, now joining Fitch and S&P (which lowered 14 years ago in 2011). That downgrade initially caused a spike in interest rates, but, given a slowing economy, by week's end, rates fell back slightly with the 10 year, after peaking a 4.62% on Thursday (May 22nd) falling back to 4.50% by close of business on Friday (May 23rd), Meanwhile, consumers have become downbeat. Target reported a -3.8% falloff in sales versus a year ago, and retail is reducing its footprint, something normally seen in Recessions. Even Walmart (WMT) feels profit pressure and is lowering its headcount. And, when consumers scale back their vacation plans, one knows economic weakness lies ahead. Another sign of a weakening economy is rising delinquency rates. We see this in every major loan category (Credit Cards, Auto Loans, HELOCs, and Student Loans). A New York Fed Survey found that 11% of respondents said they won't be meeting their minimum debt payments over the next three months. Economic weakness also showed up in Existing Home Sales, with sales falling for three months in a row. In fact, they were lower in April than they were in October '08 (in the midst of the Great Recession). Prices have fallen for four months in a row, a streak not seen for 14 years. Continuing Unemployment Claims are rising. At the same time, Initial Unemployment Claims are not. These two facts imply that jobs are harder to find than they were several months ago. This is a leading indicator that implies upward pressure on the U3 unemployment rate over the next few months. Meanwhile, inflation looks to be contained with the three-month trend in the CPI at a +1.6% annual rate. On a year/year basis, which is what the media and apparently the Fed watch, the CPI was up +2.3% in April, approaching the magic 2% Fed target. The weak soft data (surveys etc.) have begun to appear in the hard data. Once again, because changes in monetary policy have a long lag before they impact the economy, the Fed looks to be behind the curve and late to the game. It is our view that the odds of a Recession are much higher than Wall Street believes. (Joshua Barone and Eugene Hoover contributed to this blog.)
Yahoo
24-05-2025
- Business
- Yahoo
Booz Allen downgraded to Market Perform from Outperform at Raymond James
Raymond James analyst Brian Gesuale downgraded Booz Allen (BAH) to Market Perform from Outperform with no price target following this morning's 'weak' quarterly report and guidance. The company's heavier civil government mix and challenges aligning with the current administration, along with difficult comps, create a backdrop of significant organic growth deceleration, while margins 'look like they will be heavy as well' given ongoing investment in long-term growth areas, the analyst tells investors. Easily unpack a company's performance with TipRanks' new KPI Data for smart investment decisions Receive undervalued, market resilient stocks right to your inbox with TipRanks' Smart Value Newsletter Published first on TheFly – the ultimate source for real-time, market-moving breaking financial news. Try Now>> See today's best-performing stocks on TipRanks >> Read More on BAH: Disclaimer & DisclosureReport an Issue BAH Earnings: Booz Allen Stock Buckles on Bungled Earnings Booz Allen Reports Strong FY25 Financial Results Options Volatility and Implied Earnings Moves Today, May 23, 2025 Booz Allen sees FY26 free cash flow $700M-$800M Booz Allen falls 14% to $111.00 after Q4 results, FY26 guidance
Bloomberg
21-05-2025
- Business
- Bloomberg
UnitedHealth Group Downgraded to Sell at CFRA
CFRA analyst Paige Meyer downgraded UnitedHealth Group Inc. to "sell" in February, predicting a 22% fall in shares, which has since plunged 36% and lost $170 billion in market value. It's the latest in a string of negative moves for the stock. Denitsa Tsekova reports. (Source: Bloomberg)
Bloomberg
20-05-2025
- Business
- Bloomberg
Warner Bros. Discovery Downgraded to Junk by S&P
The media and entertainment company Warner Bros. Discovery Inc was downgraded to below investment grade by S&P Global Ratings, according to a report on Tuesday. The issuer credit rating was lowered to BB+, one notch below investment-grade's lowest rung of BBB-. The downgrade to junk status was largely the result of continued revenue and cash flow declines at its linear television business, S&P said. The ratings agency expects leverage to rise to 4.3 times at the end of 2025, significantly higher than 3.5 times leverage threshold for investment-grade ratings. A cut to junk level can dramatically boost a company's borrowing costs.
Forbes
20-05-2025
- Business
- Forbes
What The Moody's Downgrade Means For U.S. Treasuries
Moody's announced a change in its view of the U.S. Treasuries credit rating, with a downgrade from AAA to Aa1 on May 16. This follows other Nationally Recognized Statistical Rating Organizations (NRSRO), namely S&P and Fitch Ratings, who downgraded the U.S. Treasury debt to AA+ in 2011 and 2023, respectively. This downgrade does not come as much of a surprise to those who monitor U.S. Treasuries because Moody's had them on credit watch negative since 2023. Perhaps the real surprise with this recent announcement is the timing—during the final stages of federal budget negotiations. To be clear, the downgrade by Moody's was a decision based on a rising federal deficit, an increase in expected debt and a rising interest rate expense compared to other AAA-rated sovereign entities. While I'm not dismissing the real concerns that Moody's has highlighted, I believe the impact of this downgrade will have minimal long-term effects beyond a temporary knee-jerk response since markets have already priced in this event. The first downgrade of U.S. Treasury debt by S&P on August 5, 2011, was a significant event. Ironically, it caused a rally in U.S. Treasury bonds. There was a flight-to-quality reaction after a widening of corporate bond spreads, a risk measure for non-Treasury assets. In August 2023, when Fitch issued its downgrade, Treasury prices and spread levels were little changed. The market was not as surprised compared to the initial S&P downgrade. Given these previous market reactions, the Moody's downgrade by itself should not have any significant market reaction once the headlines fade. That said, it is uncomfortable to see such a downgrade. This will no doubt increase market volatility across the board for the near term, but I think it's important to understand the significance of the U.S. Treasury market. According to the Securities Industry and Financial Markets Association (SIFMA), the U.S. Treasury market consists of $28.6 trillion dollars of bills, notes, bonds, TIPS and Floating Rate Notes (FRNs) with more than $1.1 trillion, on average, traded every day. The U.S. Treasury market is the largest securities market on the planet, offering unrivaled liquidity, transparency and stability. This has been tested time and time again as Treasuries are commonly referred to as the 'risk-free asset.' During periods of stress, the U.S. Treasury market has historically offered significantly higher levels of liquidity compared to other markets. (Liquidity in financial markets is the ability to transact without price disruption.) During the Great Financial Crisis in 2008 and the Covid-19 disruption in 2020, investors were able to trade U.S. Treasuries while other markets were inaccessible. The recent actions by Moody's do not change these quality characteristics. The U.S. Treasury market has a major impact on other bond markets, both domestic and abroad. In municipal, corporate, mortgage-backed and other securities, bond prices are quoted in comparison to Treasury yields and traded as a spread, or additional yield over U.S. Treasuries. Treasury securities are also used as a reference for other investments, futures and forward contracts. As a result, changes in Treasury bond prices cause a cascading effect through global markets. There is no other substitute or reference security than that of the U.S. Treasury market. Despite this downgrade, the importance and significance of the U.S. Treasury market is unchanged. Now that all three major NRSROs have a consistent credit viewpoint, it's useful to revisit where the U.S. stands compared to other countries with similar and higher credit rankings. The chart below shows developed countries and their assigned ratings. Within the U.S. domestic bond market, there are only two companies that have a higher, AAA rating according to Bloomberg: Microsoft and Johnson & Johnson, along with a handful of college endowments. However, within the municipal bond sector, AAA-rated bonds are much larger—over $294 billion in market value carry a AAA rating within the Bloomberg Municipal Bond Index. This is an interesting development, to have domestic issuers with a higher rating than the U.S. Treasury. That said, comparing ratings with corporations and municipalities could be likened to comparing apples and oranges. The default probability of a non-sovereign entity that is unable to pay its obligation is different from that of a sovereign entity that chooses not to pay with its own fiat currency. While comparisons to other sovereign entities are appropriate, such comparisons to non-sovereign entities are less meaningful. The Moody's announcement has certainly grabbed the attention of investors and the media. In my opinion, that is helpful in drawing attention to the real concerns around increasing U.S. debt levels and rising budget deficits, which I cautioned nearly a year ago. Investors should understand that this action was highly anticipated and does little to change the dominance and leadership of the U.S. Treasury market. It will continue to be the largest securities market in the world, offering unparalleled execution, transparency and liquidity and will continue to provide a solid foundation upon which other global markets are built.
