Stocks, bonds and the dollar drift after the latest downgrade to the US government's credit rating

Key Points

• After Moody’s downgraded the US sovereign credit rating over rising debt, Asian shares slid and US futures dropped (S&P 500 -0.9%, Dow -0.6%) while the dollar eased to ¥145.14.
• Weak Chinese April data—retail sales up 5.1% year-on-year and industrial output slowing to 6.1%—stoked growth concerns, sending Hong Kong’s Hang Seng down 0.7% and Shanghai Composite down 0.2%.
• Despite recent volatility, Wall Street notched its fifth straight weekly gain, with the S&P 500 rising 0.7% to within 3% of its record high on hopes of tariff relief and softer US inflation reports.
• US consumer sentiment fell again in May and one-year inflation expectations surged to 7.3%, underscoring persistent economic uncertainty and its potential impact on spending.

NEW YORK (AP) — After recovering from an initial jolt, U.S. stocks, bonds and the value of the U.S. dollar drifted through a quiet Monday following the latest reminder that the U.S government may be hurtling toward an unsustainable mountain of debt.

The S&P 500 edged up by 0.1% after Moody’s Ratings became the last of the three major credit-rating agencies to say the U.S. federal government no longer deserves a top-tier “Aaa” rating. The Dow Jones Industrial Average added 137 points, or 0.3%, and the Nasdaq composite inched up by less than 0.`%.

Moody’s pointed to how the U.S. government continues to borrow more and more money to pay for its expenses, with political bickering making it difficult to either rein in Washington’s spending or raise its revenue in order to get its ballooning debt under more control.

They’re serious problems, but nothing Moody’s said is new, and critics have been railing against Washington’s inability to control its debt for many years. Standard & Poor’s lowered its credit rating for the U.S. government in 2011.

Because the issues are so well known already, investors have likely already accounted for them, according to Brian Rehling, head of global fixed income strategy and other analysts at Wells Fargo Investment Institute. They’re expecting “limited additional market impact” following the initial reactions to the Moody’s move.

Stocks and U.S. government bond prices at first fell sharply early in Monday’s trading, but they trimmed their losses as the day progressed. The S&P 500 went from a loss of 1.1% to a modest gain of 0.2% before drifting through the afternoon.

The move by Moody’s essentially warns investors globally not to lend to the U.S. government at such low interest rates, and the yield on the 10-year Treasury briefly jumped above 4.55% early Monday morning. That number shows how much in interest the U.S. government has to pay in order to borrow money for 10 years, and it was up sharply from 4.43% late Friday. But it later regressed to 4.45% as more calm returned to the market.

The yield on a 30-year Treasury bond briefly leaped above 5% before likewise receding, up from less than 4% in September.

The downgrade by Moody’s comes ahead of a tense period for Washington, where it’s set to debate potential cuts in tax rates that could suck away more revenue, as well as the nation’s limit on how much it can borrow.

If Washington has to pay more in interest to borrow cash to pay its bills, that could filter out and cause interest rates to rise for U.S. households and businesses too, in everything from mortgage rates to auto loan rates to credit cards. That in turn could slow the economy.

The downgrade adds to a long list of concerns that have already weighed on the market. Chief among them is President Donald Trump’s trade war, which itself has forced investors globally to question whether the U.S. bond market and the U.S. dollar still deserve their reputations as some of the safest places to park cash during a crisis.

The U.S. economy seems to be holding up OK so far despite the pressures of tariffs, and hopes are high that Trump will eventually relent on his tariffs after striking trade deals with other countries. That’s a major reason the S&P 500 has rallied back within 3% of its all-time high after falling roughly 20% below that market last month.

But big companies have been warning recently they’re uncertain about the future. Walmart, for example, said recently that it will likely have to raise prices because of tariffs. That caused Trump over the weekend to criticize Walmart and demand it and China “eat the tariffs.”

Walmart’s stock slipped 0.1% Monday.

Other big retailers on the schedule to report their latest quarterly results this upcoming week include Target, Home Depot, Lowe’s and TJX Cos.

On the winning end of Wall Street was Novavax, which rose 15% after it said U.S. regulators approved its COVID-19 vaccine under some conditions. The approval triggered a $175 million milestone payment under the company’s collaboration agreement with Sanofi.

All told, the S&P 500 rose 5.22 points to 5,963.60. The Dow Jones Industrial Average added 137.33 to 42,792.07, and the Nasdaq composite rose 4.36 to 19,215.46.

In stock markets abroad, indexes were mixed amid mostly modest movements across Europe and Asia.

Indexes were close to flat in both Shanghai and Hong Kong after the Chinese government said retail sales rose less in April than expected. Growth in industrial output slowed to 6.1% year-on-year from 7.7% in March.

In the foreign currency markets, the value of the U.S. dollar fell against everything from the euro to the Australian dollar.

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AP Writers Jiang Junzhe and Matt Ott contributed.