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Equity futures turned lower following the downgrade, with the S&P 500 ETF off 1% and QQQ down 1.3%. The credit action, while not unexpected, adds to the list of macro headwinds for stocks. Strategists from firms including Truist and JonesTrading said the move may accelerate profit-taking after recent equity gains. While the downgrade is unlikely to drive a systemic repricing, the signal is clear: U.S. fiscal deterioration is back on the radar for global investors.
Federal Reserve in the Spotlight as Yields Spike
Traders are now watching the Federal Reserve closely. With speeches from Atlanta’s Bostic, New York’s Williams, and Dallas’s Logan due Monday, market participants will be alert to any hints that rising yields could influence policy direction. Elevated borrowing costs may do some of the Fed’s tightening for it, but if inflation expectations stay anchored, policymakers could hold rates steady.
Market Forecast: Bearish Bias for Equities, Yields to Stay Elevated
In the short term, markets may lean bearish as investors recalibrate risk in both stocks and bonds. The downgrade serves as a wake-up call on fiscal discipline, with Treasury supply risks and policy uncertainty now front and center. Expect further pressure on long-duration assets, while equity bulls may struggle to extend recent gains without fiscal clarity.
More Information in our Economic Calendar.
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