Dow Jones, S&P, Nasdaq, Debt Rating Downgrade May Lead To Pullback On Wall Street

The major U.S. index futures on the Dow Jones, S&P and Nasdaq are currently pointing to a lower open on Monday, with stocks likely to give back ground after moving sharply higher over the previous week.

Traders may look to cash in on last week’s rally, which lifted the major averages to their best closing levels in over two months.

Last Monday’s news of a U.S.-China trade deal temporarily slashing steep tariffs on each other’s goods generated considerable buying interest that carried over throughout much of the week.

Negative sentiment may also be generated in reaction to news that Moody’s has downgraded the U.S. debt rating by a notch to Aa1 from Aaa.

Moody’s said the downgrade reflects the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns.

After initially showing a lack of direction, stocks moved mostly higher over the course of the trading session on Friday. The major averages all climbed firmly into positive territory after closing mixed for two straight sessions.

The major averages ended the day near their highs of the session. The Dow advanced 331.99 points or 0.8 percent to 42,654.74, the S&P 500 climbed 41.45 points or 0.7 percent to 5,958.38 and the Nasdaq rose 98.78 points or 0.5 percent to 19,211.10.

For the week, the tech-heavy Nasdaq soared by 7.2 percent, the S&P 500 spiked by 5.3 percent and the Dow surged by 3.4 percent.

Stocks continued to benefit from recent upward momentum, which has propelled the major averages to their best closing levels in over two months.

Monday’s news of a U.S.-China trade deal temporarily slashing steep tariffs on each other’s goods generated considerable buying interest that has carried over throughout much of the week.

While uncertainty remains about the U.S. and its trade partners reaching deals that permanently lower tariffs, traders have continued to express optimism.

Meanwhile, traders largely shrugged off preliminary data from the University of Michigan showing consumer sentiment in the U.S. has unexpectedly continued to deteriorate in the month of May.

The University of Michigan said its consumer sentiment index dipped to 50.8 in May after slumping to 52.2 in April. Economists had expected the index to inch up to 53.4.

With the unexpected decrease, the consumer sentiment index has fallen to its lowest level since hitting 50.0 in June 2022.

The report also said year-ahead inflation expectations surged to 7.3 percent in May from 6.5 percent in April, reaching the highest level since a matching figure in November 1981.

Biotechnology stocks moved sharply higher over the course of the session, driving the NYSE Arca Biotechnology Index up by 2.5 percent.

Significant strength also emerged among healthcare stocks, as reflected by the 1.9 percent gain posted by the Dow Jones U.S. Healthcare Index.

Utilities, housing and pharmaceutical stocks also saw notable strength on the day, moving higher along with most of the other major sectors.