S&P 500 Just Got Downgraded

Strong Rebound In The S&P 500

As anticipated, the U.S. and China’s agreement to pause and lower tariffs for 90 days to allow for further trade deal negotiations was a positive development for the S&P 500.

Sentiment in the market has rebounded significantly, and the V-shaped recovery from the April lows, driven primarily by retail traders and corporate buybacks, is hurdling resistance levels.

If you went to sleep on 1 April and woke up on Friday, you would have been greeted with an index that is 5% higher and little evidence of the market volatility and tariff chaos created by the Trump administration.

It’s challenging to determine whether the S&P 500 is in a bear market rally or a bull market at this point because the current V-shaped recovery could apply to both.

As noted in a previous post, time will tell, but don’t get wedded to the S&P 500 just yet.

The range of outcomes and probabilities remains wide, and it’s difficult to envisage a sustainable bull run in 2025.

Short-term, the probability of a retest of all-time highs is greater than a retest of the April lows.

Correction

That said, if the institutional investors and hedge funds were looking for a catalyst to lower the market before revisiting their underweight positions, they likely received that late on Friday.

Moody’s downgraded the U.S. credit rating from Aaa due to concerns about increasing government debt.

That downgrade will increase the cost of capital, and stocks will likely re-rate lower to account for the higher cost.

That debt concern was echoed by the House Republicans, who blocked Trump’s “big, beautiful (tax) bill” earlier on Friday because not enough spending cuts were being proposed.

Trump also announced on Friday that the U.S. will set tariff rates in the next two to three weeks.

Reading between the lines, Trump seemed to indicate that negotiating tariffs with everyone is a challenge from a time perspective. Therefore, the U.S. will set the trade policy, write to the majority, and confirm the tariff that they will pay to do business.

S&P 500 Key Levels:

The S&P 500 opens in positive gamma tomorrow. The gamma flip zone sits at 5730, the call resistance level is 5960, and the put support is 5570.

Anticipate a sell-off across all sectors due to Moody’s downgrade. A decline of 5% and a retest of 5700 can’t be ruled out.

That said, the close on Monday will likely be the low for the week.