Stock Bounce Wavers Near Bull Market for S&P 500: Markets Wrap

(Bloomberg) -- A renewed wave of dip buying fueled a rebound in stocks from session lows, with traders looking past the US downgrade by Moody’s Ratings that had earlier sent bond yields jumping. The dollar dropped.

Following a morning slide that topped 1%, the S&P 500 was little changed and remained near its bull-market threshold. Several strategists said any pullback could be a buying opportunity amid momentum fueled last week by the US-China tariff truce. Treasuries also came off session lows, following a drop that briefly sent 30-year yields above 5%. Oil fell as President Donald Trump said Ukraine and Russia would begin talks “immediately” on ending their war.

The US lost its last triple-A credit score from a major international ratings firm Friday, with Moody’s citing more than a decade of inaction by successive administrations and Congress to arrest a trend of large fiscal deficits. Treasury Secretary Scott Bessent on Sunday downplayed concerns, saying the government is determined to lower spending and grow the economy.

Thomas Lee at Fundstrat Global Advisors sees the Moody’s downgrade as a “largely non-event,” while adding that in case of any stock weakness, he would be “buying this dip aggressively.”

“There is no “surprise” here as Moody’s is citing facts we already know, the sizable US deficit,” Lee said. “And we doubt any major fixed-income manager is surprised. There is simply no incremental information here.”

The S&P 500 was little changed. The Nasdaq 100 wavered. The Dow Jones Industrial Average gained 0.2%.

United States Steel Corp. rose on a news report Nippon Steel Corp. plans to invest $14 billion in the company if the US approves their merger. JPMorgan Chase & Co. says second-quarter investment-banking fees could drop more than analysts are expecting as volatility set off by Trump’s policy announcements continues to chill deals. 

The yield on 10-year Treasuries was little changed at 4.48%.  Switzerland’s central bank chief gave a vote of confidence to US government bonds, saying there’s no alternative to them. The Bloomberg Dollar Spot Index fell 0.5%.

“We view this latest credit action as a headline risk rather than a fundamental shift for markets,” said Mark Haefele at UBS Global Wealth Management. “So while the downgrade may lean against some of the recent ‘good news’ momentum, we do not expect it to have a major direct impact on financial markets.”

Investors should buy any dips in US stocks fueled by Friday’s credit rating cut, as the trade truce with China has reduced the odds of a recession, according to Morgan Stanley’s Michael Wilson.

The strategist sees a greater chance of a pullback in equities after the downgrade by Moody’s Ratings pushed 10-year bond yields above the key 4.5% level. However, “we would be buyers of such a dip,” Wilson wrote in a note.

Max Kettner at HSBC Holdings Plc also sees an S&P 500 dip on Moody’s US downgrade as a potential opportunity.

For a more persistent fall in risk assets, Kettner says the market would need to enter what he defines as “Danger Zone.” Put simply, we’d need to see higher rate expectations and the US 10-year yield rise above 4.7%, according to the strategist. 

“Until that is the case, we’d view any fall in risk assets as an opportunity to scale up exposure,” he noted.

Goldman Sachs Group Inc. strategist David Kostin expects the “Magnificent Seven” group of technology stocks to resume outperforming the broader S&P 500 on robust earnings trends.

While the earnings backdrop for the S&P 500 has stabilized in recent weeks, RBC Capital Markets strategists still anticipate further downward revisions for 2025.

A team lead by Lori Calvasina says “last week’s gap up in the stock market was largely deserved, but that upside from here may be limited without another major step-up improvement in broader macro expectations. They added that the market may be “a little ahead of itself from a fundamental perspective.”

Meantime, Long-dated Treasuries, which had already been moving higher before Moody’s statement, briefly topped 5% amid investor concerns about a surging debt load. The US deficit has been in excess of 6% of gross domestic product for the past two years, an unusually high burden outside of economic recessions or world wars.

“The US credit rating downgrade adds to a long list of uncertainties that the stock market is weighing right now, including tariff, fiscal, inflation and economic ones,” said Clark Geranen, chief market strategist at CalBay Investments.

Washington lawmakers are risking a “fiscal disaster” if a recession hits as they plow on with their package of sweeping tax cuts, according to Guggenheim Securities Co-Chair Jim Millstein.

“What today is 6.4% of GDP as a deficit, a $2.4 trillion deficit, could easily expand to $4 trillion if we had a recession,” Millstein said in an interview on Bloomberg Television. The cost estimates of the current GOP package “assume consistent economic growth. So imagine we have a recession. In the last five or six recessions, the budget deficit actually blows out because tax revenues go down and spending increases.”

Two Federal Reserve officials, including New York Fed chief John Williams, suggested policymakers may not be ready to lower interest rates before September as they confront a murky economic outlook.

“It’s not going to be that in June we’re going to understand what’s happening here, or in July,” Williams said Monday at a conference organized by the Mortgage Bankers Association. “It’s going to be a process of collecting data, getting a better picture, and watching things as they develop.”

Atlanta Fed President Raphael Bostic struck a similar tone in an earlier interview on Monday, signaling an unwillingness to move rates for some time.

Corporate Highlights:

• Nvidia Corp. Chief Executive Officer Jensen Huang outlined plans to let customers deploy rivals’ chips in data centers built around its technology, a move that acknowledges the growth of in-house semiconductor development by major clients from Microsoft Corp. to Amazon.com Inc.
  • Nvidia and Abu Dhabi investment vehicle MGX are partnering with French firms to establish what they say will be Europe’s largest artificial intelligence data center campus, advancing French and Emirati ambitions in the field.
• Microsoft Corp. is adding models from Elon Musk’s xAI to its artificial intelligence marketplace.
• Solar companies slumped after conservative Republican lawmakers said they had secured a commitment from leadership to end key clean-energy tax credits earlier than planned, part of a sweeping deal aimed at allowing President Donald Trump’s giant tax and spending package to advance.
• Novavax Inc. jumped after US regulators fully approved its Covid vaccine, easing investors’ concerns after the clearance was delayed and US Health and Human Services Secretary Robert F. Kennedy Jr. raised doubts about its efficacy.
• A key Home Depot Inc. sales metric is expected to slow when it reports fiscal first-quarter results, setting the company up for a longer-than-expected recovery.
• Bankrupt genetic-testing firm 23andMe agreed to sell its data bank, which once contained DNA samples from about 15 million people, to the drug developer Regeneron Pharmaceuticals for $256 million.
• Wendy McMahon, who served as chief executive officer of CBS News and its station group, said she is stepping down, citing a disagreement with management.
• B. Riley Financial Inc. named Scott Yessner, who has been serving as a strategic adviser for the past two months, to succeed Chief Financial Officer Phillip Ahn as the company grapples with overdue regulatory filings and probes.
• Blackstone Infrastructure agreed to acquire New Mexico utility owner TXNM Energy Inc. for about $5.7 billion, the latest in a flurry of power deals as US electricity consumption grows.

Some of the main moves in markets:

Stocks

• The S&P 500 was little changed as of 2 p.m. New York time
• The Nasdaq 100 was little changed
• The Dow Jones Industrial Average rose 0.2%
• The MSCI World Index rose 0.1%
• Bloomberg Magnificent 7 Total Return Index fell 0.5%
• The Russell 2000 Index fell 0.7%

Currencies

• The Bloomberg Dollar Spot Index fell 0.5%
• The euro rose 0.6% to $1.1230
• The British pound rose 0.5% to $1.3349
• The Japanese yen rose 0.5% to 145.04 per dollar

Cryptocurrencies

• Bitcoin rose 1.3% to $105,469.95
• Ether rose 4.7% to $2,507.98

Bonds

• The yield on 10-year Treasuries was little changed at 4.48%
• Germany’s 10-year yield was little changed at 2.59%
• Britain’s 10-year yield advanced two basis points to 4.66%

Commodities

• West Texas Intermediate crude fell 0.2% to $62.39 a barrel
• Spot gold rose 0.7% to $3,225.83 an ounc

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