US stock futures fell on Monday after Moody’s Investors Service downgraded the outlook for the US credit rating to negative from stable.
Dow Jones Industrial Average futures fell 120 points, or 0.36%. Futures linked to the S&P 500 and Nasdaq-100 were both down 0.5%.
Moody’s on Friday highlighted the US’s “very large” budget deficits and partisan gridlock in Washington as contributing factors to the downgrade. The ratings agency reaffirmed America’s credit rating at AAA, the highest level. This comes three months after Fitch downgraded the US long-term foreign currency issuer default rating to AA+ from AAA, also citing expected fiscal deterioration, a rising debt burden and political stalemate over fiscal and debt issues.
“In the context of higher interest rates, without effective fiscal policy measures to reduce government spending or increase revenues,” the agency said. “Moody’s expects US budget deficits to remain very large, significantly weakening debt affordability.”
While there is “zero risk of default on US debt”, the lower rating outlook remains relevant for its impact on the attractiveness of the debt to foreign investors, said Jay Hatfield, CEO of Infrastructure Capital Management.
“The US has been downgraded because our budget process is completely broken. That’s really the crux of the problem – that there is no real organised process for passing a budget. That has an impact on the psyche of the global fund ambassadors,” Hatfield said.
On the economic data front, investors will be keeping an eye on the monthly federal budget for October, as well as the Federal Reserve Bank of New York’s consumer expectations survey for October. Fed Governor Lisa Cook is also due to speak on Monday morning. All of this comes ahead of Tuesday’s monthly CPI data.
The major averages are coming off their second straight week of gains. The S&P 500 rose 1.3% last week, while the Dow and Nasdaq gained around 0.7% and 2.4% respectively.
