US equities rise despite Moody`s downgrade

General market commentary

U.S. equity markets closed largely flat on Monday as investors digested Moody’s downgrade of the U.S. long-term credit rating from Aaa to Aa1, the last major rating agency to cut the nation’s rating. Despite concerns over rising government debt and deficits, the Dow Jones Industrial Average edged up 0.3%, while the S&P 500 rose slightly, supported by defensive sectors such as healthcare and consumer staples. Treasury yields were volatile, with the 10-year yield ending near 4.45%, after briefly reaching its highest level since February. Federal Reserve officials, including Atlanta Fed President Raphael Bostic, noted uncertainty around tariffs and anticipated one interest rate cut in 2025.

On the corporate front, earnings growth showed signs of slowing, with 92% of S&P 500 companies having reported results indicating a moderate rise in revenues and profits. UnitedHealth Group led gains among major shares after a price target cut but maintained a buy rating, while acquisitions by Blackstone and strategic sales by AMD influenced sector movements. Overall, the market reflects cautious optimism, balancing fiscal concerns and trade developments with resilient corporate earnings and steady economic indicators.

Latest market and economic update

Asian equities rose modestly on Tuesday, with Chinese shares leading after a key lending rate cut, and Australian equities gaining ahead of an anticipated RBA interest rate reduction. Broader gains across Japan, South Korea, Singapore, and Hong Kong were tempered by renewed U.S.-China trade tensions, particularly over chip export controls.

U.S. share futures edged higher as investors weighed a credit rating downgrade and the potential fiscal impact of a proposed tax-cut bill, while awaiting remarks from Federal Reserve officials for clues on interest rate policy. After-hours trading saw pressure on solar energy equities and Best Buy, as investors looked ahead to earnings from Home Depot and Toll Brothers.

The STOXX 50 and STOXX 600 both fell 0.4% on Monday, weighed down by negative sentiment following Moody’s downgrade of the US credit rating, while traders remained focused on geopolitical developments including a new EU-UK defence cooperation agreement. Sector-wise, food & beverages and travel & leisure led gains, with Diageo and BNP Paribas rising on positive corporate news despite broader market weakness.

The dollar index steadied around 100.4 on Tuesday after a sharp drop, reflecting market concerns over the US credit downgrade and the impact of President Trump’s tax-and-spending bill on the deficit. In currency trading, the euro strengthened against the dollar, with EUR/USD holding firm at 1.1244 amid ongoing uncertainty over US fiscal and monetary policy.

Oil prices edged higher this morning amid faltering U.S.-Iran nuclear talks, which cast doubt on the prospect of increased Iranian oil exports, while Moody’s downgrade of the U.S. sovereign credit rating and weak Chinese economic data limited further gains. Market volatility is expected to persist due to ongoing geopolitical tensions, trade uncertainties, and the conflict between Russia and Ukraine.

U.S. President Donald Trump announced that Russia and Ukraine will begin immediate ceasefire negotiations following a two-hour call with Vladimir Putin, describing the discussion as "excellent" and potentially pivotal. He stated that key European leaders have been informed and suggested the Vatican may host the talks, emphasising post-war trade opportunities for both nations.

The European Commission has downgraded its growth forecasts for the Euro Area to 0.9% in 2025 and 1.4% in 2026, citing rising tariffs and increased uncertainty from recent US trade policy shifts. Inflation is expected to ease faster than previously thought, with the Eurozone reaching the ECB’s 2% target by mid-2025, while Germany’s economy is forecast to stagnate in 2025 before rebounding modestly in 2026.

Equities on the move

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

Shares of Chinese EV battery maker CATL rose 12.5% on their Hong Kong debut, raising $4.6 billion in the largest global listing of 2025 so far, boosted by strong investor demand and optimism after a temporary US-China trade truce. The funds will support CATL’s European expansion, including a new factory in Hungary, as it maintains a 38% share of the global EV battery market amid growing interest from institutional investors.

Nvidia has launched Lepton, a new software platform that creates a marketplace for cloud-based AI chips, enabling cloud providers to sell GPU capacity more seamlessly to developers. While major cloud firms like Microsoft, Amazon, and Google are not yet partners, the platform aims to simplify access to Nvidia’s GPU ecosystem and support global demand growth.

JPMorgan Chase provided cautious guidance for the second quarter, expecting investment banking fees to decline by mid-teens year-on-year due to ongoing market volatility and uncertain economic conditions. While the bank anticipates mid to high single-digit growth in market activities compared to last year, it emphasised the challenges of making accurate forecasts in the current unpredictable environment.

A Georgia judge ruled that Delta Air Lines can proceed with much of its lawsuit against CrowdStrike, alleging gross negligence over a faulty software update that caused a major computer outage and led to 7,000 flight cancellations. Delta, which claims $550 million in losses, may also pursue claims of computer trespass and limited fraud, while CrowdStrike maintains the case lacks merit.

Ryanair reported strong demand across Europe and expects fares to recover most of last year’s 7% decline, projecting a mid-to-high teen percentage rise in fares for the upcoming quarter. Despite a 16% fall in annual profit, the airline flew a record 200 million passengers and anticipates modest cost inflation, with aircraft deliveries on track and cautious optimism over Boeing pricing amid potential EU tariffs.

Diageo plans to cut $500 million in costs and sell significant assets by 2028, aiming to reduce its debt and improve performance without selling its Guinness brand. The company expects these measures to generate around $3 billion in annual free cash flow from 2026, while facing a reduced tariff impact of $150 million per year amid challenging trading conditions.

Moody’s downgraded the long-term ratings of major U.S. banks, including JPMorgan Chase, Bank of America, and Wells Fargo, following the U.S. sovereign credit downgrade, citing reduced confidence in the government’s ability to support systemically important institutions. While JPMorgan retained a positive outlook due to its strong position, other banks now hold stable ratings.

Cantor Fitzgerald remains bullish on Tesla, highlighting upcoming catalysts like the robotaxi launch, a lower-priced vehicle, and Full Self-Driving expansion, as well as strong growth potential from its manufacturing, robotics, and energy storage ventures. However, Morgan Stanley cautions that Tesla’s high valuation is difficult to justify, as much of its value depends on unproven future businesses, emphasising the need for stronger earnings and cash flow to support its stock price.

JPMorgan downgraded Netflix to Neutral from Overweight, citing a reduced risk-reward appeal following a sharp rally that has pushed shares to record highs, now reflecting much of the expected upside. While maintaining a positive long-term view on Netflix’s strong fundamentals and growth prospects, the bank highlights near-term risks and expects a rotation into other internet shares if macroeconomic concerns ease.

UBS upgraded Delta Air Lines and United Airlines from Neutral to Buy, citing stronger international and premium travel demand, improved revenue expectations, and a stabilising economic outlook supported by recent tariff reliefs and rising household wealth. The bank also raised 2025 earnings estimates and price targets for both airlines, expecting easing revenue pressure and growth in the coming years.

Wells Fargo downgraded Reddit to Equal Weight from Overweight, citing lasting user disruptions due to Google’s AI-powered search tools and cutting its price target to $115 from $168. The firm lowered its growth forecasts for logged-in users and ad revenues, warning that AI-driven changes in search behaviour and challenges to Reddit’s data licensing business pose significant risks to long-term monetisation and stock performance.

J.P. Morgan downgraded Euronext shares to “neutral” from “overweight” after the stock’s sharp rally and a modest earnings downgrade, citing elevated valuations and limited upside despite strong revenue growth and ongoing integration efforts. While recognising Euronext’s diversified business and growth potential, analysts favour London Stock Exchange Group for its stronger growth drivers and more attractive valuation.

Upcoming data and events

Investors will today be focus on speeches from Federal Reserve officials Raphael Bostic and Mary Daly, alongside the release of the API Weekly Crude Stock report. Major companies reporting earnings include Home Depot, Palo Alto Networks, and Vodafone Group.

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