On May 19, 2023, Wall Street experienced a downturn as major indexes slipped, with the Dow Jones Industrial Average falling by 0.52%, the S&P 500 dropping 0.93%, and the Nasdaq Composite declining by 1.34%. These losses were predominantly influenced by a spike in Treasury yields following the Moody's downgrade of the U.S. sovereign credit rating, which has reignited concerns over the country's escalating debt.
Moody's Investors Service downgraded the United States' sovereign credit rating from Aaa to Aa1 late on Friday, citing worries surrounding the nation's soaring debt, which now stands at a staggering $36 trillion. This decision positions Moody's as the last of the three major credit rating agencies to lower the nation's rating, a significant move considering it first awarded the U.S. its top-tier rating in 1919.
Investment strategist Ross Mayfield from Baird commented on the situation, stating, "Nothing new, but it's putting a lot of things that the market has worried about rightfully back into focus." He emphasized that the volatility in markets is primarily driven by concerns over the U.S. deficit, particularly in light of President Donald Trump's sweeping tax-cut bill, which has faced delays due to Republican disputes over spending cuts.
As of 09:35 a.m. ET, the Dow was down 222.40 points, settling at 42,432.34. The S&P 500 followed suit, losing 55.42 points to reach 5,902.96, while the Nasdaq Composite fell by 257.49 points to 18,953.61. A notable trend observed was that ten out of the eleven S&P sub-sectors experienced declines, with the consumer discretionary and energy sectors emerging as the worst performers.
High-valuation technology stocks were particularly impacted, as rising rates affect the present value of future profits. Tesla led the losses among major tech firms, dropping by 4.1%. Other tech giants also faced declines, with Nvidia down 1.4% and a semiconductor stocks gauge shedding 1.9%.
Yields on U.S. government bonds rose, with the 10-year note climbing 9 basis points to 4.526% and the 30-year note nearing 5.000%. The S&P 500 had managed to register its fifth consecutive day of gains the previous Friday, buoyed by a temporary tariff truce between the U.S. and China and favorable inflation data.
In recent comments, U.S. Treasury Secretary Scott Bessent indicated that President Trump is likely to implement tariffs at previously threatened rates on trading partners that fail to negotiate in good faith. Additionally, Atlanta Fed President Raphael Bostic mentioned that the Fed might only cut interest rates by a quarter point for the remainder of the year, while New York Fed President John Williams suggested that current interest-rate policies are well-positioned to tackle the uncertain economic environment.
In stock-specific news, Netflix saw a decline of nearly 1% after being removed from J.P. Morgan's U.S. analyst focus list. Conversely, TXNM Energy surged by 7.6% following the announcement of its acquisition by Blackstone's infrastructure unit in an $11.5 billion deal.
The market breadth was notably negative, with declining issues outnumbering advancers by a ratio of 5.98-to-1 on the NYSE and 2.91-to-1 on the Nasdaq. The S&P 500 recorded three new 52-week highs with no new lows, while the Nasdaq Composite saw ten new highs and 23 new lows.
This market update highlights the ongoing volatility and the significant impact of economic indicators such as credit ratings and interest rates on investor sentiment.
