Investors Shrug Off U.S. Downgrade
The market reaction made it clear just how much Moody's credit downgrade actually means.
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Investors shrugged off the Moody’s downgrade of U.S. debt on Monday. The low point of the day was the opening print, and it was steady buying the rest of the day. The S&P500 and Nasdaq 100 QQQ closed nearly flat, while the Russell 2000 IWM small-cap index lagged with a loss of 0.4%. Breadth was negative, but there was a good supply of new 12-month highs at almost 500 names.
Overall, it was very strong action, suggesting that there is still a healthy appetite for more risk. More consolidation would be the best course of action at this point.
Bonds also bounced back very nicely from initial weakness. They didn’t recover quite as well as equities, but the recovery helped to cement the view that the Moody’s downgrade is backward-looking and not particularly meaningful.
At this point, there is not a lot of upcoming news on the agenda. There are no major economic reports due, but there are several Fed members scheduled to speak. Economic optimism has increased nicely since the China tariffs were cut, and there is also a positive view of inflation.
There was some talk on Monday morning about the possibility of tariffs increasing again if there are no trade deals, but that is just part of the posturing during negotiations. We likely have not seen the end of tariff turmoil, but at least it is on hold for now.
Technically, market conditions are still very positive. There is a sizable wall of worry, and we had a good illustration of how the market can climb even in the face of bad news like a debt downgrade. There are still plenty of folks who believe the economy is heading for a recession, but they are on the wrong side of the action right now and helping to propel things higher.
Have a good evening. I’ll see you tomorrow.
At the time of publication, DePorre had no positions in any securities mentioned.
