Wall Street Inches Higher as Markets Weighs U.S. Credit Downgrade
Despite the debt downgrade, Morgan Stanley advised investors to consider buying U.S. equities on any pullback.
Quick overview
- U.S. stocks closed nearly unchanged on Monday, with the Dow Jones Industrial Average rising 0.32% led by a rebound in UnitedHealth Group.
- Moody's downgraded the U.S. credit rating from 'Aaa' to 'Aa1', citing concerns over the rising debt burden.
- Morgan Stanley sees potential buying opportunities in U.S. equities despite the downgrade and market jitters.
- Futures for the S&P 500 dipped 1.2% as concerns about the expanding fiscal deficit and trade uncertainty resurfaced.
U.S. stocks closed nearly unchanged on Monday, with the major indexes posting marginal gains as investors weighed the implications of Moody’s downgrade of the U.S. credit rating and growing concerns over a controversial fiscal proposal.
The Dow Jones Industrial Average rose 0.32% to 42,792.07, led by a rebound in UnitedHealth Group, which surged over 8% after tumbling more than 23% last week — its fifth straight week of losses. The S&P 500 edged up 0.09% to 5,963.60, while the Nasdaq Composite added 0.02% to 19,215.46.
Moody’s Downgrade and Fiscal Uncertainty
On Friday, Moody’s downgraded the U.S. sovereign credit rating from ‘Aaa’ to ‘Aa1’, citing growing concerns about the rising debt burden of the world’s largest economy. It marked the last of the major credit rating agencies to cut the U.S. from the top tier.
The downgrade contributed to an increase in 10-year Treasury yields, as markets also reacted to a fiscal bill gaining traction in Congress that could significantly expand U.S. debt levels.
Mixed Sector Performance
Across sectors, movements were mild and mixed. Within the Dow, UnitedHealth Group stood out, staging a sharp rebound that helped lift the index despite broader market hesitation.
The Flip Side: Morgan Stanley Sees a Buying Opportunity
Despite the credit downgrade and resulting market jitters, Morgan Stanley strategist Michael Wilson advised investors to consider buying U.S. equities on any pullback. He pointed to easing trade tensions with China as a factor that lowers the risk of a recession.
Wilson acknowledged that Moody’s decision could increase near-term pressure on equities — especially as the 10-year yield pushed above 4.5% — but emphasized that such pullbacks present buying opportunities, according to a client note released Monday.
Futures for the S&P 500 dipped 1.2% earlier in the day, following Moody’s rationale that the downgrade stemmed from the United States’ expanding fiscal deficit, with no signs of restraint. The development reignited broader concerns about the long-term appeal of U.S. assets amid continued fiscal and trade-related uncertainty.
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