Market Watch: Stocks Tumble as Moody’s Downgrade Shakes Investor Confidence

Major Indexes Retreat Following US Credit Rating Cut

The stock market is experiencing significant downward pressure today, Monday, May 19, 2025, as investors react to Moody’s downgrade of US sovereign debt from AAA to Aa1. This marks a notable shift in market sentiment after last week’s rally fueled by easing US-China trade tensions.

As of the latest trading data, the Dow Jones Industrial Average has fallen approximately 350 points (0.8%), while the S&P 500 is down 1.1% and the Nasdaq Composite is showing the steepest decline at 1.4%. This pullback comes after all three major indexes had turned positive for the year last week, with the Nasdaq jumping over 7% and the S&P 500 gaining 5% during that period.

The credit rating downgrade, which occurred late Friday, has cast a shadow over the market’s recent optimism. Moody’s cited the growing US budget deficit and concerns about the potential extension of President Trump’s 2017 tax cuts, which could add approximately $4 trillion to the deficit over the next decade.

Bond Market Reaction and Treasury Yields

The downgrade has had an immediate impact on the bond market, with Treasury yields climbing in response. The yield on the benchmark 10-year Treasury note has risen to 4.523%, up from last week’s levels. This increase reflects growing investor concerns about US fiscal health and potential borrowing challenges.

Treasury Secretary Scott Bessent attempted to downplay the significance of the downgrade, calling it “a lagging indicator” during a Sunday interview on NBC News. However, market participants appear unconvinced, as evidenced by the selling pressure across equity markets.

Key Earnings Reports This Week

Amid the market turbulence, investors are closely watching several major earnings reports scheduled for this week, particularly from the retail sector:

– Home Depot (HD) reports Tuesday, with analysts expecting insights into consumer spending on big-ticket discretionary items and overall housing market sentiment
– Lowe’s (LOW) announces results Wednesday, with revenue estimated at $20.95 billion, down only 2% from the previous year
– Target (TGT) reports Wednesday, with revenue projected to be nearly flat at $24.4 billion, as the stock has dropped over 26% year to date
– Other notable companies reporting include TJX Companies, Medtronic, Snowflake (Wednesday) and Intuit, Analog Devices, Workday, Autodesk (Thursday)

Market analysts will be particularly focused on whether retailers echo Walmart’s recent warning that tariffs will lead to price increases for consumers.

Tech Sector Spotlight: Nvidia’s Upcoming Earnings

In the technology sector, Nvidia (NVDA) remains a focal point for investors ahead of its first-quarter fiscal 2026 earnings announcement scheduled for May 28. The stock has experienced volatility in 2025 but has jumped 27% in the past three weeks.

Analysts expect Nvidia to deliver $43 billion in revenue for the quarter, representing a 65% increase year-over-year. The company recently announced a major partnership with Humain, an AI subsidiary of Saudi Arabia’s sovereign wealth fund, which will involve the sale of “several hundred thousand” advanced GPUs over the next five years.

The temporary reduction in US-China tariffs could potentially benefit Nvidia, as reports indicate Chinese clients placed orders for at least $16 billion worth of Nvidia’s H20 AI GPUs in the first quarter of 2025.

Economic Data and Central Bank Decisions

This week’s economic calendar includes several important data releases that could influence market direction:

– S&P Global will release manufacturing and services PMI on Thursday
– The National Association of Realtors will report existing-home sales on Thursday
– The Census Bureau will release new home sales data on Friday
– Eurozone Final April CPI data will be released today
– China and Australia are expected to make rate announcements

Market Outlook and Investor Sentiment

Despite today’s selloff, some positive economic indicators remain. Last week’s retail sales rose 0.1% in April, in line with consensus estimates, while the producer price index (PPI) showed a sharp decline of 0.5% sequentially in April, compared to analysts’ expectations of a 0.3% increase.

However, consumer sentiment has deteriorated, with the preliminary US May University of Michigan consumer sentiment survey falling to 50.8, its second-lowest level ever. Nearly 75% of respondents expressed concerns about tariffs, and consumers are anticipating a 7.3% annual price increase next year, the highest since 1981.

As markets navigate this challenging landscape, investors are balancing the positive developments in US-China trade relations against growing concerns about US fiscal health and potential inflationary pressures. The coming days will be crucial in determining whether today’s selloff represents a temporary correction or the beginning of a more sustained market downturn.