Moody’s Downgrades U.S. Credit Outlook
U.S. stock futures slipped on Sunday night following Moody’s Investors Service’s decision to lower its U.S. credit rating outlook from stable to negative, citing higher interest rates and deficits as contributing factors.
Dow Jones Industrial Average futures dipped 54 points, or 0.1%, while futures tied to the S&P 500 and Nasdaq-100 both shed 0.2%.
Moody’s attributed America’s “very large” fiscal deficits and partisan gridlock in Washington as reasons for the downgrade. Despite the warning, the agency reaffirmed the U.S.’ credit rating at AAA, the highest level.
This news comes after Fitch downgraded the U.S. long-term foreign currency issuer default rating to AA+ from AAA three months prior, also citing an expected fiscal deterioration and increasing debt burden.
Moody’s emphasized the importance of effective fiscal policy measures to reduce government spending or increase revenues in the context of higher interest rates, in order to significantly weaken debt affordability.
CEO Jay Hatfield of Infrastructure Capital Management highlighted the impact of the downgrade on the attractiveness of U.S. debt for foreign investors, despite the absence of default risk.
Furthermore, investors will be monitoring October’s monthly federal budget, the Federal Reserve Bank of New York’s October consumer expectations survey, and remarks from Fed Governor Lisa Cook on Monday, with the monthly consumer price index data scheduled for release on Tuesday.
Despite the downgrade, the major averages are coming off their second consecutive week of gains, with the S&P 500 rising 1.3%, and the Dow and Nasdaq gaining about 0.7% and 2.4%, respectively.
While economic uncertainties remain, the markets are continuing to show resilience amid challenging conditions.
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