US stocks fell and bond yields spiked on Monday after rating agency Moody's last week downgraded the credit rating of the United States by one notch, citing fiscal risks.
The 30-stock Dow Jones Industrial Average dropped over 300 points or 0.7% to trade below 42,400, while the tech-heavy Nasdaq Composite shed 1.4% to briefly sink below 19,000.
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The S&P 500 declined 1% to under 5,900. All eleven sectoral indices were trading in red, with the sharpest decline in energy and consumer discretionary stocks.
In lowering the US to Aa1 from Aaa — the highest investment-grade position — Moody's joined Fitch Ratings and S&P Global Ratings in downgrading the world's biggest economy.
“While we recognize the US' significant economic and financial strengths, we believe these no longer fully counterbalance the decline in fiscal metrics," Moody's said in a statement Friday.
The credit downgrade pressured bond prices and caused the yield on the benchmark 10-year US Treasury jump eight basis points to 4.56%.
The dollar index was down 0.7% at 100.34, with the greenback declining against the yen, euro and pound.
Among major stocks, Tesla dropped as much as 4.7%, Apple shed 3.3%, while Advanced Micro Devices and ExxonMobil fell over 2%.
US Treasury Secretary Scott Bessent downplayed concerns over the government debt and the inflationary impact of Trump tariffs on companies, saying the administration is determined to lower federal spending and grow the economy, reported Bloomberg.
The White House criticised Moody's call, casting it as a political decision.
The credit rating trigger came as US lawmakers discussed budget proposals of the Trump administration that is expected to add to the national debt over the medium term.
Worries over fiscal risks have dampened appeal for US assets even as last week saw positive developments on the trade front with China.
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