Moody`s US downgrade dampens equity rally

General market commentary

US equities ended the week on a strong footing, with the S&P 500 registering its fifth straight daily gain on Friday. The index rose 0.7% to close at 5,958.4, while the Dow Jones Industrial Average climbed 0.8% to 42,654.7 and the Nasdaq Composite added 0.5% to 19,211.1. All major sectors closed in positive territory except energy, with health care leading the gains. Markets were buoyed by a notable easing in trade tensions between the US and China after productive talks in Geneva led to a 90-day suspension of most tariffs. This, coupled with positive analyst upgrades in industrial names like 3M and Caterpillar, helped lift investor sentiment.

Over the week, equities delivered robust performance: the Nasdaq jumped 7.2%, the S&P 500 rose 5.3%, and the Dow advanced 3.4%. The rally was underpinned by the US-China tariff truce, a rebound in technology shares, and stabilising inflation data. While hard economic data—including housing starts and retail sales—remained relatively firm, soft data pointed to lingering caution, with consumer sentiment hitting its lowest level in nearly three years. Still, softer-than-expected CPI and PPI readings signalled easing inflationary pressures, strengthening the case for potential rate cuts later in the year. The combination of geopolitical relief, resilient fundamentals, and hopes for more accommodative policy helped drive a broad-based advance across US share markets.

Latest market and economic update

Asian equity markets mostly declined on Monday following a U.S. credit rating downgrade by Moody’s and mixed economic data from China, raising concerns over slowing global growth. Shares in China, Japan, South Korea, Singapore, and Hong Kong fell, while Australia’s ASX 200 was flat ahead of a key interest rate decision, reflecting broad caution across the region.

U.S. equity futures plunged overnight as concerns over fiscal sustainability deepened following Moody’s downgrade of the U.S. credit rating to Aa1, citing rising entitlement spending, interest costs, and political gridlock. Despite the downgrade, Treasury Secretary Scott Bessent downplayed its significance, while losses were partly cushioned by data showing continued foreign capital inflows and optimism from a recent temporary U.S.-China tariff reduction deal

European markets closed lower on Friday, with the STOXX 600 down 0.3%, as investors reacted to CEO changes at Novo Nordisk and cautious outlooks from Cisco and Allianz. Novo Nordisk shares fell 1.8% after the unexpected dismissal of CEO Lars Fruergaard Jørgensen amid rising competition, while Allianz declined after HSBC downgraded it to "Hold," citing easing pricing momentum and limited upside.

The US dollar index slipped to around 100.7 following Moody’s downgrade of the US credit rating and weak economic data that have raised expectations of Federal Reserve rate cuts this year. Meanwhile, the EUR/USD is trading near 1.1185, supported by relative Eurozone resilience and ongoing dollar weakness amid US fiscal and trade uncertainties.

Oil prices edged lower in Asian trading, pressured by oversupply concerns amid ongoing U.S.-Iran nuclear talks and increased OPEC+ output. Brent crude fell 0.3% to $65.20 per barrel and WTI slipped 0.3% to $61.77, with market sentiment also affected by Moody’s U.S. credit downgrade and upcoming Trump-Putin discussions on the Russia-Ukraine conflict.

China's April data showed weaker-than-expected retail sales and fixed-asset investment, reinforcing concerns over sluggish consumer and business spending. Industrial production beat forecasts but slowed from March’s pace, while a slight dip in the unemployment rate pointed to modest labour market stability.

Moody’s downgraded the U.S. sovereign credit rating due to concerns over the country's soaring $36 trillion debt and persistent fiscal deficits, complicating President Trump’s efforts to pass tax cuts. The move, following earlier downgrades by Fitch and S&P, has raised fears of higher borrowing costs, market volatility, and growing investor unease over the nation’s financial direction.

Equities on the move

The following companies experienced moves in their share price driven by analyst ratings, quarterly earnings, or other news:

Walmart cannot fully absorb the cost of U.S.-imposed tariffs on Chinese imports due to narrow margins but remains committed to keeping prices low for consumers. President Trump criticised the retailer, claiming it made billions in profits and should “eat the tariffs” instead of passing costs to customers, highlighting tensions between his administration and major U.S. retailers.

Novo Nordisk ousted CEO Lars Fruergaard Jorgensen amid concerns over losing its lead in the obesity drug market as rival Eli Lilly gains ground and its pipeline disappoints investors. Despite eight successful years, his departure reflects mounting challenges, including declining sales, patent expirations, and rising pressure on drug prices.

Analysts at New Street Research downgraded Cisco to Neutral, saying its post-downturn recovery has largely played out and investors should wait for a new entry point. While Jefferies acknowledged strong Q3 results and steady growth, they noted limited near-term upside due to margin pressures, slower future growth, and elevated valuation.

UBS upgraded Caterpillar to Neutral from Sell and raised its price target, citing reduced downside risks following progress in U.S.-China trade talks and potential tariff de-escalation. While the earnings outlook has improved, UBS warned that macroeconomic uncertainty and lingering tariff effects could still weigh on demand and investor sentiment.

HSBC downgraded Allianz to “Hold” and cut its target price to €370, citing easing pricing momentum in its Property and Casualty segment and limited upside with shares near guidance top. While Allianz posted steady first-quarter results, modest earnings growth, weaker-than-expected income, and premium valuation relative to the sector prompted a more cautious outlook.

HSBC upgraded Carnival to Hold from Reduce, citing resilient bookings, improved profitability, and progress in reducing debt, alongside a raised price target. The bank noted strong Q1 performance, improved EBITDA margins, and reduced gearing, concluding that earlier concerns have eased and the shares are now fairly valued.

Michael Burry’s Scion Asset Management has taken bearish positions against Nvidia and several major Chinese tech firms, while increasing its stake in Estée Lauder to $13.2 million, reflecting confidence in the beauty company’s new CEO amid challenging markets. Estée Lauder, generating 31% of sales in China, benefits from recent U.S. tariff reductions despite slow growth.

JPMorgan upgraded Renk to Overweight and doubled its December 2026 price target to €70, citing stronger-than-expected orders and a robust outlook driven by rising European defence spending, especially in Germany. Despite a slight revenue miss in Q1, the firm expects margin recovery and significant growth, with EBITA margins projected to reach 19.5% by 2027 and net income hitting €226 million.

S&P Global Ratings downgraded German agribusiness Suedzucker to ’BBB-/A-3’ due to slower deleveraging and weaker credit metrics from a drop in sugar segment EBITDA and a tough trade environment. Despite revenue declines and cost-cutting, Suedzucker is well funded with no major refinancing needs until 2027, with credit metrics expected to improve after fiscal 2027.

Upcoming data and events

It will be a relatively quiet week in the US, with focus on tariff developments, Fed officials’ speeches, and key data including S&P Global PMIs and housing sales. Globally, markets will watch S&P Global PMIs for major economies, China’s economic indicators and interest rate decision, inflation and trade data from Japan and Europe, as well as central bank announcements from Australia and Canada.

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