{"id":67912,"date":"2025-05-21T05:33:50","date_gmt":"2025-05-21T05:33:50","guid":{"rendered":"https:\/\/mycryptomania.com\/?p=67912"},"modified":"2025-05-21T05:33:50","modified_gmt":"2025-05-21T05:33:50","slug":"will-the-moodys-u-s-credit-downgrade-wreck-the-rally","status":"publish","type":"post","link":"https:\/\/mycryptomania.com\/?p=67912","title":{"rendered":"Will the Moody\u2019s U.S. credit downgrade wreck the rally?"},"content":{"rendered":"

Easing trade tensions between the U.S. and China delivered a spark that kept the stock market rally\u00a0intact<\/strong>.<\/p>\n

While the U.S. and China didn\u2019t exactly come to a deal, they did announce a 90-day pause on significantly higher tariff rates<\/strong>. The U.S. will cut the tariff rate on Chinese imports to 30% from 145%. China is cutting the tariff on U.S. imports to 10% from\u00a0125%.<\/p>\n

The pause will allow trade negotiations to continue. But the de-escalation in tensions was enough to drive equity markets higher through key levels<\/strong>. The S&P 500 jumped over 5% on the week which took it above the 200-day moving average (MA\u200a\u2014\u200agreen line) in the chart below. That was also the next price resistance level at the 5800 area (shaded\u00a0area).<\/p>\n

The stock market was also buoyed by softer than expected inflation data. The Consumer Price Index (CPI) came in lower than expected. The headline figure came in at 2.3% year-over-year for April, which is the lowest level since early 2021<\/strong>. The core figure that strips out food and energy increased by 2.8% which matched estimates.<\/p>\n

But just as the weekend got started, Moody\u2019s came out with a surprise downgrade<\/strong>. The bond-rating agency cut the U.S. credit rating from its top Aaa rating to Aa1. Moody\u2019s cited the nation\u2019s rising debt level, which stands at $36 trillion, along with increasing interest costs as the catalyst for the downgrade<\/strong>.<\/p>\n

Moody\u2019s was the last of the three major credit rating agencies to cut the U.S. rating from top-ranked territory. At the same time, negative breadth divergences and bullish investor sentiment are appearing<\/strong>.<\/p>\n

This week, let\u2019s look at what stock market price thrusts means for forward returns<\/strong>, and why near-term bearish conditions are spreading across breadth and sentiment data. We\u2019ll also look at why the market is beginning to price fewer interest rate cuts ahead despite cooler inflation data<\/strong>.<\/p>\n

The Chart\u00a0Report<\/h3>\n

The extreme stock market reaction to tariffs and trade tensions highlights the binary nature of the trade war, especially with China<\/strong>. Bad news and rising tensions sent stocks crashing, while easing tensions and a pause on much higher tariff rates has sent the S&P 500 back toward the prior all-time highs. While the U.S. runs a $295 billion trade deficit with China, companies in the S&P 500 collectively generate $1.2 trillion in sales from China<\/strong> (chart below). That\u2019s 7% of total revenues for the S&P 500, and shows the risk to earnings from a trade\u00a0war.<\/p>\n

The surge in the S&P 500 is surpassing levels associated with extreme price thrusts. The index is up more than 18% in just 25 trading days, which has only happened six times in the past 50 years<\/strong>. Similar to breadth thrusts tracking the ratio of advancing stocks to declining issues, price thrusts have historically been positive for forward market returns<\/strong>. The chart below shows returns for the S&P 500 following a 25-day advance of 18% or more. A year later, the index was up every time with an average gain of\u00a030%<\/strong>.<\/p>\n

While price and breadth thrusts bode well for forward longer-term returns, breadth divergences show bearish conditions are clouding the near-term outlook<\/strong>. The chart below shows the percent of stocks trading above their 20-day moving average. The percent of stocks across the market in a short-term uptrend made a lower high as the S&P 500 has continued rallying<\/strong> (dashed lines in the chart below). That means there are fewer stocks in short-term uptrends relative to the start of May even as the S&P 500 has moved\u00a0higher.<\/p>\n

At the start of April, several measures of investor sentiment were showing extreme bearish views. With the rally in the S&P 500, sentiment has quickly swung back into greed territory and too much bullishness<\/strong>. CNN\u2019s Fear & Greed Index is hovering just below \u201cextreme greed\u201d. Data tracking put and call option volumes also shows investors are loading into bullish bets. In early April, the put\/call ratio hit the highest level in a year as investors made bearish bets. That aligned with the low in the stock market<\/strong>. Last week, that ratio fell to one of the lowest levels of the past couple years as call volumes jumped relative to\u00a0puts<\/strong>.<\/p>\n

Last week featured cooler than expected inflation reports across both consumer and producer gauges<\/strong>. While that may support more interest rate cuts by the Federal Reserve this year, the level of the 2-year Treasury yield is suggesting otherwise<\/strong>. The chart below shows the 2-year against the fed funds rate. The 2-year can lead changes in fed funds, and is moving higher toward current fed funds since the start of May. The 2-year yield is now around 0.50% below fed funds, suggesting just two quarter-point rate cuts\u00a0ahead<\/strong>.<\/p>\n

Heard in the\u00a0Hub<\/h3>\n

The Traders Hub features live trade alerts, market update videos, and other educational content for\u00a0members<\/strong>.<\/p>\n

Here\u2019s a quick recap of recent alerts, market updates, and educational posts:<\/p>\n

A new pattern to follow in the market\u2019s leading\u00a0stocks.<\/strong>The setup in Spotify\u2019s (SPOT) chart and my trading\u00a0plan.<\/strong>How the \u201crate of change\u201d in liquidity is a bullish catalyst.<\/strong>Easing trade tensions are fueling a risk-on move across the\u00a0market.<\/strong>How to use breadth and sentiment indicators to forecast stock\u00a0trends.<\/strong><\/p>\n

You can follow everything we\u2019re trading and tracking by becoming a member of the Traders\u00a0Hub<\/strong>.<\/p>\n

By becoming a member, you will unlock all market updates and trade alerts reserved exclusively for\u00a0members.<\/p>\n

\ud83d\udc49You can <\/strong>click here to join\u00a0now<\/strong><\/a>\ud83d\udc48<\/strong><\/p>\n

Trade Idea<\/h3>\n

Ollie\u2019s Bargain Outlet Holdings\u00a0(OLLI)<\/p>\n

Developing a base-on-base after moving above the $100 level in December. The stock is back testing that level as support several times, while making a new resistance level at $120. Watching for a smaller pullback off that level to reset the MACD above zero followed by a breakout.<\/p>\n

Key Upcoming\u00a0Data<\/h3>\n

Economic Reports<\/em><\/p>\n

Earnings Releases<\/em><\/p>\n

I hope you\u2019ve enjoyed The Market Mosaic, and please share this report with your family, friends, coworkers\u2026or anyone that would benefit from an objective look at the stock\u00a0market.<\/p>\n

Become a member of the Traders Hub<\/strong> to unlock access\u00a0to:<\/p>\n

\u2705Model Portfolio<\/strong><\/p>\n

\u2705Members Only\u00a0Chat<\/strong><\/p>\n

\u2705Trade Ideas & Live\u00a0Alerts<\/strong><\/p>\n

\u2705Mosaic Vision Market Updates +\u00a0More<\/strong><\/p>\n

Our model portfolio is built using a \u201ccore and explore\u201d approach, including a Stock Trading Portfolio and ETF Investment Portfolio.<\/p>\n

Come join us over at the Hub as we seek to capitalize on stocks and ETFs that are breaking\u00a0out!<\/strong><\/p>\n

Come join the\u00a0Hub!<\/a><\/p>\n

Disclaimer: these are not recommendations and just my thoughts and opinions\u2026do your own due diligence! I may hold a position in the securities mentioned in this\u00a0report.<\/em><\/p>\n

Will the Moody\u2019s U.S. credit downgrade wreck the rally?<\/a> was originally published in Coinmonks<\/a> on Medium, where people are continuing the conversation by highlighting and responding to this story.<\/p>","protected":false},"excerpt":{"rendered":"

Easing trade tensions between the U.S. and China delivered a spark that kept the stock market rally\u00a0intact. While the U.S. and China didn\u2019t exactly come to a deal, they did announce a 90-day pause on significantly higher tariff rates. The U.S. will cut the tariff rate on Chinese imports to 30% from 145%. China is […]<\/p>\n","protected":false},"author":0,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[],"class_list":["post-67912","post","type-post","status-publish","format-standard","hentry","category-interesting"],"_links":{"self":[{"href":"https:\/\/mycryptomania.com\/index.php?rest_route=\/wp\/v2\/posts\/67912"}],"collection":[{"href":"https:\/\/mycryptomania.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mycryptomania.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"replies":[{"embeddable":true,"href":"https:\/\/mycryptomania.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=67912"}],"version-history":[{"count":0,"href":"https:\/\/mycryptomania.com\/index.php?rest_route=\/wp\/v2\/posts\/67912\/revisions"}],"wp:attachment":[{"href":"https:\/\/mycryptomania.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=67912"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mycryptomania.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=67912"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mycryptomania.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=67912"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}