The last weekend brought some horrific news that Moody’s was downgrading the United States credit ratings to ‘Aa1’ from ‘Aaa.’ The entire weekend’s financial news and political news narratives switched entirely to this “shocking development.” And while U.S. Treasury yields did rise handily (30-year over 5% and 10-year over 4.5%), the stock market managed to recover its early and still close up on the reaction on Monday before selling off on Tuesday and Wednesday. So, here is the big ongoing question that investors need to ask — was this Moody’s downgrade really as shocking as it seems?

No one should ever believe that this explanation somehow translates to “this Moody’s downgrade was a good thing.” It wasn’t a good thing. But a takeaway should be considered here is that Moody’s had been issuing warnings for years about the sovereign credit ratings of the big bold United States. It should also be considered that Moody’s was the last of the three major ratings agencies to cut the U.S. rating — S&P was first to downgrade to AA+ way back in 2011, and Fitch downgraded it in 2023.

One issue which seems to have been overlooked in this downgrade is that the United States now has a “Stable” outlook again. And (again) this is not aimed at trying to overlook the news. Moody’s now has the United States as a lower debt credit rating than Australia, Canada, Denmark, Germany, Luxembourg, Netherlands, New Zealand, Norway, Singapore, Sweden, and Switzerland. The Moody’s report did not warn of any impending recession.

Tactical Bulls does agree with Moody’s in some of its observations. On other observations, not as much. Many Americans feel the move was also politically motivated against President Trump because the same circumstances had been in place for prior years under Joe Biden’s term. Mark Zandi, Chief Economist of Moody’s Analytics, has been known to be very much of a democrat for years and he has contributed to democratic economic policies in the past. And the 2025 U.S. Federal Budget, and the subsequent spending from the budget, was passed under Joe Biden in 2024. This is why so much of DOGE’s savings simply isn’t making a dent in total government spending yet.

And for the stock sell-off of the last two days since Monday, this is not exclusively about the Moody’s downgrade. Higher U.S. Treasury yields will compete for capital that may have otherwise gone to stocks, that much is an absolute truth at certain milestones. Earning 4.5% for 10-year or 5% for 30-year Treasuries is a deemed a very viable alternative to stocks for many income and dividend investors. Those create yield-equivalent P/E ratios of 20.0 for the 30-year and 22.2 for the 10-year Treasuries. The S&P 500 P/E ratio is closer to 28 and its dividend yield is a paltry 1.3%. Then again, the return on bonds is set in stone if held to maturity and history has proven that the total value and the growth of equities has always overcome (and then some) that gap versus Treasuries over the course of ten years or longer.

The public should strongly consider that this Moody’s warning had been coming for many years. Actually, they started over a decade ago when the global markets and economy were still recovering from the Global Financial Crisis. Tactical Bulls has pulled the related research headlines from Moody’s that date in 2025 before this downgrade all the way back to 2009 (see below). The headlines have been added here, but it’s literally a fifteen-year span of warnings even on the “good” reports when the U.S. rating was at ‘Aaa.’

Perhaps the biggest concern about this downgrade is that it is coming at a time when the “United States Exceptionalism” has peaked. Many foreign holders have been lightening up on or exiting their positions of U.S. stocks and bonds. President Trump’s tariffs are often cited for the rationale, but the United States weighting of the entire world’s equity markets had also reached unprecedented levels. The BIS portal for Q4-2024 showed the value of all U.S. debt (financial corporations, general government and non-financial corporations) at $57.2 trillion — more than the $25 trillion of China and the $25 trillion of the European Union combined.

Moody’s picked multiple points and issues for its final decision to issue a credit rating downgrade:

• increase over more than a decade in government debt
• federal spending has increased while tax cuts have reduced government revenues
• interest payment ratios to levels that are significantly higher than similarly rated sovereigns
• expect budget flexibility to remain limited
• mandatory spending (including interest expense, to rise to ~78% of total spending by 2035 (from 73% in 2024)
• tax cut extension from 2017 adding ~$4 trillion to federal fiscal primary budget (excluding interest payments) over next decade
• deficits reaching 9% of GDP in 2035 (versus 6.4% in 2024)
• U.S. government interest burden was 12% of revenues in 2024
• significant economic/financial strengths no longer fully counterbalance the decline in fiscal metrics

And now look at the headlines by year on the ratings actions and views based around developments impacting the world economy and financial markets at that time. These are all shown below.

2025

Government of the United States: Fiscal strength will continue to weaken in most scenarios (25 March 2025)

2023

Moody’s changes outlook on United States’ ratings to negative (10 November 2023)

Government of United States: FAQ on sovereign credit implications of debt limit brinkmanship (10 March 2023)

2020

Government of United States – Aaa stable Update following rating affirmation, outlook unchanged (19 June 2020)

2019

Government of United States: US Budget deal and debt limit suspension avert fiscal cliff (2 August 2019)

2018

Government of United States of America: Widening deficits will drive gradual decline in fiscal strength over medium term (12 December 2018)

Government of United States – Aaa Stable: Update following rating affirmation, outlook changed (25 April 2018)

2017

Government of United States of America: President Trump inherits modest deficit and healthy economy, but debt challenges loom (24 January 2017)

2015

Stable Outlook Despite Low Growth, Jittery Markets and Uneven Reforms (4 November 2015)

Moody’s: Failure to lift debt ceiling, although unlikely, would not mean impending US Debt Default (26 October 2015)

2014

United States, Government of: Social Spending Poses Risks to Fiscal Profile, Absent Policy Actions (29 October 2014)

2013

Moody’s changes outlook on US Aaa sovereign rating to stable from negative; rating affirmed (18 July 2013)

2011

Moody’s Updates on Rating Implications of US Debt Limit, Long-Term Budget Negotiations (2 June 2011)

The US Federal Debt Debate and Its Effect on the Aaa Rating (21 April 2011)

Moody’s confirms US Aaa Rating, assigns negative outlook (2 August 2011)

2010

Health care reform not a long-term solution to US budget deficit (April 2010)

Debt Commission Chairs’ Proposals Would Improve US Debt, but Adoption Unlikely (15 November 2010)

2009

Moody’s Sovereign: New U.S. Budget Projections Show Greater Long-Term Fiscal Pressures (August 2009)

This should make all of us wonder if Federal Reserve Chairman Jerome Powell has blinked at all and realized that an immediate interest rate cut would instantly make up for many of the problems this downgrade highlighted. Higher interest rates are creating higher loans for mortgages, autos, credit cards, business lines of credit, personal bank loans, and even student loans. By keeping short-term rates higher, Powell is also driving up U.S. borrowing costs because the debt servicing costs are so much higher than they used to be.

Investors should not be glad that Moody’s downgraded the credit ratings of the United States. Many of the problems Moody’s addressed in this downgrade are the same problems that have been brought up for a decade. The Moody’s downgrade is certainly not just a Nothing Burger. It’s also not the end of the world as we know it.