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Growing investor confidence on US trade deals has sent stocks to their highest levels in more than two months, but Moody's Friday downgrade is now weighing on the market.
On Friday, the ratings agency agency downgraded the US sovereign credit rating by one notch, becoming the final major agency to do so, due to worries over the country’s mounting $36 trillion debt.
Last week, the S&P 500 (^GSPC) rose 5.3% while the Nasdaq Composite (^IXIC) soared 7.2%. The Dow Jones Industrial Average (^DJI) popped about 3.4%. Both the S&P 500 and Nasdaq have now recouped their losses from the initial tariff-driven sell-off in early April and are in positive territory year to date.
Tariff headlines will remain in focus this week, a quiet one for scheduled announcements in markets. Updates on activity in the manufacturing sector and weekly filings for unemployment highlight the light economic calendar.
With the bulk of companies done reporting first quarter earnings, results from Palo Alto Networks (PANW), Target (TGT), Home Depot (HD), and Workday (WDAY) will be in focus.
The top story in markets remains Trump's trade war. News of a 90-day tariff pause with China sent stocks roaring last week and prompted several Wall Street strategists to get more bullish on their outlooks for the S&P.
Treasury Secretary Scott Bessent said on Sunday, that tariff rates will go back to "reciprocal" levels if trade deals aren't made during the 90-day pause.
“President Trump has put them on notice that if you do not negotiate in good faith, you will ratchet back up to your April 2 level,” Bessent told CNN.
Bessent added that there are 18 key partners that the US is prioritizing trade deals with, he didn't specify when tariffs might return to reciprocal levels.
President Trump said Friday that the US will set tariff rates for its trading partners within the next few weeks. In a note to clients defending his year-end S&P 500 target of 6,500, Fundstrat head of research Tom Lee wrote that if "tariff deals are soon announced, equities can further recover."
But strategists have also noted that most tariffs are just paused, with negotiations for actual deals still ongoing. This leaves a considerable amount of policy uncertainty lingering in markets.
"I do think we still need to be a little bit cautious until we have a more cemented agreement, not just with China but with Europe as well. And that's still on the back burner," Victoria Fernandez, Crossmark Global Investments chief market strategist, told Yahoo Finance.
