Article Hero

US Stocks Stable After Moody’s Lowers Outlook on US Debt

Miguel A. Rodriguez
Miguel A. Rodriguez
14 November 2023

Moody’s lowered its outlook on the US credit rating to ‘negative’ on Friday, pausing the rally on the stock market. Keep reading to find out how this rating moved markets yesterday. 

Stock Market Rally Halted Yesterday

Following Friday’s stock market rally, investors started this week on a more cautious note as they digested news from Moody’s. The credit rating agency announced at the close of the session on Friday that its doubts about the outlook of North American credit have increased. The reason behind this downward view was cited as political polarization and federal spending.

Moody’s Lowered US Credit Rating to ‘Negative’

Moody's changed its outlook on the US credit rating from ‘stable’ to ‘negative.’ The agency did, however, maintain its long-term ‘Aaa’ rating.

In a statement, the agency said it expects the deficits of the US to continue to increase, which will significantly weaken debt affordability. The context for this outlook, according to the agency, is higher interest rates and a lack of effective fiscal policy measures to reduce public spending or increase revenues.  

Treasury Bond Yields Rose on Concerns of Government Spending

Government spending and the lack of a political deal have created concern among investors. This has led to treasury bond sales pushing US government bond prices to their lowest levels in 16 years.

Treasury bond yields rose yesterday with the 10-year bond close to 4.67% - the highest level for the month of November. The rise in market interest rates threatens to end the stock market rally that began thanks to the downward correction of treasury bond yields after the release of employment figures at the start of the month.

October CPI Out Today Could Affect the Stock Market

Today's release of October's Consumer Price Index (CPI) data will provide an update on the Federal Reserve’s (Fed) progress in its battle to reducing inflation from multi-decade highs last year, and therefore, the future of market interest rates.

Inflation is expected to increase by 0.1% monthly and 3.3% annually. The September CPI rose 0.4%, a 3.7% annual increase, but also showed a moderation in underlying inflationary pressures.

While these forecasts point to a cooling of inflationary pressure, Fed’s Chair Jerome Powell hinted last week that the battle against inflation may not be over yet. He said another rate hike is possible, an opinion which was largely supported by several of his colleagues throughout the week.

Therefore, the result of the October CPI figure out today will have a direct impact on the performance of the stock market, which is proving to be very sensitive to the behaviour of market interest rates.

Wall Street Indices Slowed Yesterday

For now, and while investors wait for the CPI data to be released, the Wall Street indices slowed down Friday's momentum and the Nasdaq 100 closed the session with hardly any changes compared to the previous close.

TECH100 chart Nov 14 2023.png

TECH100 monthly chart, November 14, 2023. Source: CAPEX.com WebTrader.

Key Takeaways

  • The stock market stopped climbing after Moody’s lowered its outlook on US debt.
  • Treasury bond yields rose yesterday, with the 10-year bond close to 4.6%.
  • October’s US CPI data will be released today and is expected to provide an update on inflation.
  • Inflation is expected to have increased by 0.1% monthly, 3.3% annually.
  • Even though figures point to cooling of inflation, Powell hinted that another rate hike may be needed.  
  • The market interest rate and the stock market may be affected by the upcoming CPI figure.
  • Wall Street indices slowed down the stock market’s rally that was gaining speed until Friday.

Related Articles:

Sources: Bloomberg, Reuters 

This information/research prepared by Miguel A. Rodriguez does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views and consequently any person acting on it does so entirely at their own risk.The research provided does not constitute the views of KW Investments Ltd nor is it an invitation to invest with KW Investments Ltd. The research analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report.The research analyst in not employed by KW Investments Ltd. You are encouraged to seek advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit that conforms to your specific investment objectives, financial situation, or particular financial needs before making a commitment to invest. The laws of the Republic of Seychelles shall govern any claim relating to or arising from the contents of the information/ research provided. 

Share this article

How did you find this article?

Awful
Ok
Great
Awesome

Read More

Miguel A. Rodriguez
Miguel A. Rodriguez
Financial Writer

Miguel worked for major financial institutions such as Banco Santander, and Banco Central-Hispano. He is a published author of currency trading books.