US Markets Start Lower as Dow Drops Over 250 Points
US stock markets opened significantly lower on Monday following a downgrade of the country’s sovereign credit rating by Moody’s. The rating agency cited rising federal debt and concerns over long-term fiscal stability as key factors behind the decision. This downgrade has shaken investor confidence, leading to widespread selling across major indices and increased market volatility.
Market Reaction to Credit Downgrade
At the opening bell, the Dow Jones Industrial Average fell by 288.77 points, or 0.68%, settling at 42,365.97. The S&P 500 also experienced a decline, dropping 56.68 points, or 0.95%, to reach 5,901.70. The Nasdaq Composite led the downturn, plunging 235.60 points, or 1.23%, to 18,975.50. The downgrade was influenced by projections indicating that federal deficits could soar to nearly 9% of GDP by 2035, up from 6.4% in 2024. This increase is attributed to rising interest payments, entitlement costs, and weak tax revenues. Moody’s also highlighted the potential extension of tax cuts from the Trump administration, which could add an estimated $4 trillion to the deficit over the next decade.
Investor Sentiment and Market Volatility
The downgrade has prompted a flight to safety among investors, resulting in a notable increase in the CBOE Volatility Index (VIX), which rose by 11.14% to 19.16. Concurrently, the yield on the 10-year US Treasury climbed to 4.539%, an increase of 10 basis points. In the commodities market, gold prices surged by $49, or 1.54%, reaching $3,236.20 per ounce as investors sought safe-haven assets. Conversely, US crude oil prices edged down by $0.07, or 0.11%, settling at $62.42 per barrel, reflecting a broader risk aversion in the market.
Global Market Trends and Corporate Developments
The opening weakness in the US markets follows a week of solid gains, which had been buoyed by hopes of easing US-China trade tensions. However, renewed concerns regarding structural debt challenges and policy uncertainty in Washington have dampened global risk sentiment. Futures trading indicated this nervousness, with the S&P 500 down 1.1%, Dow Jones Industrial Average futures falling 0.6%, and Nasdaq futures tumbling 1.5%. The US dollar also faced pressure, slipping to 144.96 yen from 145.65 yen. In corporate news, Capital One completed its long-anticipated acquisition of Discover, although its shares dipped slightly in premarket trading. Additionally, JPMorgan’s upcoming investor conference is expected to draw attention, particularly comments from CEO Jamie Dimon regarding global economic risks.
International Market Performance
European markets mirrored the US trend, with Germany’s DAX slipping 0.1%, France’s CAC 40 declining 0.8%, and the UK’s FTSE 100 shedding 0.4%. In Asia, markets closed lower as well, following disappointing Chinese economic data that showed a softer-than-expected 5.1% rise in April retail sales and a slowdown in industrial output growth. Hong Kong’s Hang Seng index edged down 0.1%, while the Shanghai Composite remained nearly flat. Notably, Alibaba’s shares in Hong Kong fell by 3.4% amid reports of US regulatory scrutiny over a potential collaboration between Apple and Alibaba in the AI sector. Other Asian markets also experienced declines, with Tokyo’s Nikkei 225 down 0.7%, South Korea’s Kospi dropping 0.9%, and Australia’s S&P/ASX 200 sliding 0.6%. Oil prices continued to face downward pressure, with US crude declining to $61.39 per barrel and Brent crude slipping to $64.83.
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