Moody's downgrade leads to a drop in U.S. stock futures: Dow Jones at 34,800 points, S&P 500 at 4,960 points, Nasdaq 100 at 21,440 points

On May 20, 2025, Moody's downgraded the U.S. sovereign credit rating from Aaa to Aa1, leading to a drop in the futures of the three major U.S. stock indices. Dow Jones Industrial Average futures stood at 42,800 points, S&P 500 futures were approximately 5,960 points, and Nasdaq 100 futures were approximately 21,440 points. Concerns over the U.S. fiscal deficit and debt sustainability have intensified, putting pressure on the stock, bond, and foreign exchange markets simultaneously. Despite the recent strong performance of the S&P 500 spot index, the weakness in the futures market reflects investors' cautious outlook on future trends.

Moody's Downgrade Sparks Market Volatility

Last Friday, international credit rating agency Moody's downgraded the U.S. sovereign credit rating from the highest level "Aaa" to "Aa1" and revised the outlook from "negative" to "stable." This marks the first time since 1919 that the U.S. has lost the highest credit rating in Moody's system. Moody's pointed out that the expanding fiscal deficit and political polarization in the U.S. are undermining its credit foundation as the world's largest economy.

This rating adjustment triggered a sharp market reaction. According to The Economic Times, U.S. stock futures plunged early Monday morning, with Dow E-mini futures dropping 335 points (a decline of 0.78%), S&P 500 E-mini futures falling 73.5 points (a decline of 1.23%), and Nasdaq 100 E-mini futures tumbling 345.75 points (a decline of 1.61%).

Overview of the Three Major Index Futures

According to MoneyDJ's quote at 4:40 PM Taipei time on May 20, Dow Jones Industrial Average futures were at 42,814 points, down 71 points, a decline of 0.17%; S&P 500 futures were at 5,963.5 points, down 19 points, a decline of 0.32%; Nasdaq 100 futures were at 21,440.75 points, down 86.25 points, a decline of 0.40%. These figures indicate that despite a rebound in the spot market the previous trading day, the futures market continues to show weakness.

Earlier at 2:31 PM, quotes showed Dow futures had dipped to 42,786 points, a decline of 0.23%; S&P 500 futures were at 5,958.25 points, a decline of 0.41%; Nasdaq 100 futures had once fallen to 21,405.75 points, a decline of 0.56%. This reflects the market's high uncertainty as it processes the Moody's downgrade news.

Technology Stocks and Bond Market Under Pressure

Technology stocks showed weak performance in pre-market trading, weighing on the Nasdaq 100 index. According to Futu NiuNiu, Tesla (TSLA) fell over 4% pre-market, Nvidia (NVDA) dropped more than 3%, and TSMC (TSM) and Meta Platforms (META) both fell about 2%. Additionally, quantum computing concept stocks like Rigetti Computing (RGTI) and Quantum Computing (QUBT) also saw declines of over 3%.

In the bond market, the 10-year U.S. Treasury yield fell 1 basis point to 4.44%, and the 2-year Treasury yield dropped to 3.97%. Although declining yields typically benefit the stock market, this drop reflects a shift of safe-haven funds into bonds, indicating persistent concerns about the U.S. fiscal outlook.

Fed Officials' Speeches and Policy Outlook

The market is also closely watching the latest speeches from Federal Reserve (Fed) officials. According to Futu NiuNiu, Fed Vice Chair Jefferson and New York Fed President Williams are expected to speak in the evening local time, with investors looking for further clues on interest rate policy and economic outlook.

Although no major economic data is scheduled for release that day, UBS economist Paul Donovan noted that Fed officials' remarks will be a market focus, especially amid the backdrop of the rating downgrade and tax reform bill advancement, which increases policy uncertainty.

Tax Reform Bill Progress and Political Risks

According to Futu NiuNiu, the tax bill "One Big Beautiful Bill Act" proposed by former U.S. President Trump passed the House Budget Committee vote on Sunday evening, with a vote of 17 to 16. While the bill's advancement may affect corporate tax liabilities, the lack of fiscal support also exacerbates market concerns about worsening U.S. fiscal deficits.

Moreover, Moody's rating report also mentioned that political polarization and inconsistent fiscal policies are key factors leading to the downgrade. This has led investors to adopt a more conservative stance when facing future policy directions.

Spot Market Performance and Technical Analysis

Despite the weakness in the futures market, the spot market showed relative stability in Monday's trading. According to the Hong Kong Economic Times, the Dow Jones Industrial Average once fell 317 points intraday but later rebounded, closing at 42,788 points, up 133 points (a rise of 0.31%); the S&P 500 index rose slightly by 1 point to 5,960 points; the Nasdaq index fell 28 points to 19,182 points.

Technically, the Dow index has closed higher for four consecutive weeks and broke through the 200-day exponential moving average (EMA) of 41,500 points, rebounding nearly 17% from the April low of 36,600 points. However, the pullback in the futures market indicates that the market still faces pressure from credit rating risks and policy uncertainty in the short term.

Moody's downgrade leads to a drop in U.S. stock futures: Dow Jones at 34,800 points, S&P 500 at 4,960 points, Nasdaq 100 at 21,440 points

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