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 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.
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Sources: Bloomberg, Reuters
