Moody’s Downgrade Shakes Wall Street

The major cash market averages are coming off their second consecutive week of gains. The S&P 500 rose 1.3% last week, while the Dow and Nasdaq gained about 0.7% and 2.4%, respectively.

Credit Rating Outlook Downgrade

Moody’s downgraded the U.S. credit rating outlook to negative, citing “very large” fiscal deficits and partisan gridlock. This follows Fitch’s earlier downgrade of the U.S. long-term foreign currency issuer default rating. While the U.S. maintains a AAA credit rating, these downgrades highlight concerns about fiscal policy effectiveness, government spending, and revenue generation.

Impact on Treasury Yields and Investor Sentiment

The downgrade’s impact is significant for the attractiveness of U.S. debt to foreign investors. It underscores the perceived risk of U.S. fiscal policies and the budget process. This development, coupled with a resurging threat of a U.S. government shutdown, is influencing Treasury yields and the psyche of global fund ambassadors.

Anticipation of Key Economic Data

Investors are also keenly awaiting this week’s economic data, including the consumer price index and producer price index. These indicators will be crucial in shaping expectations about the Federal Reserve’s monetary policy. Fed Chairman Jerome Powell’s recent comments suggest the Fed is still grappling with high inflation and assessing its policy stance’s effectiveness.

Short-Term Market Forecast

Given these factors, the short-term outlook for U.S. markets appears cautious. The combination of credit rating concerns, upcoming economic data, and the Federal Reserve’s policy decisions will be pivotal in shaping market directions. Investors will particularly focus on the federal budget statement and the New York Fed’s consumer inflation expectations survey, seeking clues about the economy’s trajectory.

Technical Analysis

With the S&P 500 E-mini Futures currently at 4420.75, they are positioned above both the 200-day moving average of 4282.15 and the 50-day moving average of 4366.12. This positioning suggests a bullish trend in the short to medium term.

The current price is approaching the minor resistance level at 4424.50; a break above this could lead to testing the main resistance at 4494.00. Should the price retreat, the minor support at 4336.00 and main support at 4236.75 will be key levels to watch.

This technical setup indicates a bullish sentiment, contingent on the ability to breach near-term resistance levels.