Stocks Reverse Moody’s-Induced Losses to Extend Rally Amid Receding Yield Spike

U.S. equities finished modestly higher on Monday, clawing back early session losses that followed Moody’s downgrade of the U.S. sovereign credit rating. After initially falling more than 1%, the S&P 500 staged an intraday rebound to close up 0.1%, marking a sixth straight day of gains. The Dow Jones Industrial Average outperformed with a 137-point advance (+0.3%), bolstered by a massive rebound in UnitedHealth. The Nasdaq Composite managed to edge into positive territory by the close, despite weakness in tech and chip names. Investors ultimately shrugged off the downgrade, taking a “well, finally” attitude toward a move that echoed S&P’s cut in 2011 and Fitch’s in 2023.

Sector Performance Mixed: Health Care Leads, Energy Lags

Sector performance was split, with healthcare (+0.6%) leading gains on the back of a 7.6% surge in UnitedHealth, which continued its recovery despite ongoing DOJ scrutiny. Consumer staples and financials also posted modest advances. On the downside, energy (-1.6%) lagged despite a modest uptick in crude prices. Tech (-0.3%) and consumer discretionary (-0.4%) were pressured by profit-taking after recent strength, with chipmakers giving back ground—PHLX Semiconductor Index slid 0.7%, narrowing its MTD gain to 15.5%. Notably, breadth was poor, with fewer than 200 S&P names in the green, and the Equal Weight S&P 500 ETF declined 0.3%.

Moody’s Downgrade Hits at a Sensitive Time—but Fails to Shock

Moody’s downgraded U.S. sovereign debt from Aaa to Aa1 after Friday’s close, citing unsustainable fiscal trends and rising interest costs. Treasury yields initially surged overnight, with the 10-year hitting 4.56% and the 30-year touching 5.04%, but retraced throughout the day to settle at 4.47% and 4.94%, respectively. Treasury Secretary Scott Bessent dismissed the move as a “lagging indicator,” while CFRA’s John Luke Tyner noted it’s “not telling investors anything they didn’t already know.” Still, it served as a stark reminder of the debt trajectory, just as Trump’s reconciliation bill faces a pivotal House vote this week.

Nvidia Wobbles Despite Expansive AI Announcements at Computex

Nvidia (NVDA) slipped 0.2% despite a high-profile keynote from CEO Jensen Huang at Taiwan’s Computex. The company unveiled NVLink Fusion, allowing third-party chips in its AI server racks, along with new tools like DGX Cloud Lepton and expanded partnerships with Foxconn and second-tier GPU players. Angelo Zino of CFRA noted these moves “position NVDA to deepen its AI ecosystem and broaden its revenue base, particularly with DGX Spark and Station pushing into the personal AI market.” Still, shares eased slightly after recent momentum, with traders likely taking profits after a 15% May surge.

Other Movers: UnitedHealth Soars, Tesla Slumps

UnitedHealth (UNH) soared 7.6% after executives disclosed $30M in insider share purchases, easing some investor anxiety following last week’s DOJ investigation headlines. The stock added 147 points to the Dow. Tesla (TSLA) fell 2.3% amid weak China and European sales trends and continued scrutiny of EV demand elasticity in the face of tariffs and slowing credit-fueled purchases. JPMorgan (JPM) slipped 0.9% despite hosting its investor day, where CEO Jamie Dimon reiterated plans to eventually step down and noted heightened geopolitical risk. The bank raised 2025 NII guidance slightly, but flat investment banking revenue tempered the reaction.

Macro Highlights and Geopolitical Watch

President Trump said negotiations between Russia and Ukraine will begin immediately after a “very good” call with President Putin, boosting hopes for de-escalation. The Vatican has reportedly offered to host talks. Meanwhile, Japan reiterated that existing U.S. tariffs are “unacceptable,” and the European Commission cut eurozone growth forecasts. ECB's Wunsch hinted that rates may need to fall below 2%, though a 50bp cut seems unlikely. In the U.S., April’s Leading Economic Index fell more than expected (-1.0% vs -0.7% est.), marking the 26th consecutive monthly decline and contributing to late-session support for Treasuries and equities.

Commodities and Currency Markets

Crude oil closed up just 0.2% at $62.12/barrel, but the energy sector still posted broad losses. Natural gas fell 6.5% to $3.45/MMBtu. Meanwhile, the dollar initially dropped sharply but trimmed losses by the end of the session as yields fell back; the DXY settled down 0.7% at 100.42.

Looking Ahead

Markets appear to be entering a "wait-and-see" phase. Nationwide’s Mark Hackett suggested this “Trump put” phase may usher in a quieter summer marked by sideways trade. Upcoming earnings from Home Depot, Lowe’s, and Target could dictate short-term sentiment, especially as management teams address tariff impacts. For now, the rebound from early selling pressure shows resilience—but the fiscal and geopolitical headwinds are far from resolved.