Wall Street surges on US-China tariff rollback, yet Moody's downgrade and rising yields loom

US stocks rally amid tariff relief and inflation optimism

United States (US) stock markets finished last week on a high note after the US and China agreed to significantly roll back tariffs for 90 days. Cooler-than-expected consumer price index (CPI) and producer price index (PPI) data reinforced expectations for potential Federal Reserve (Fed) interest rate cuts later this year.

Over the week, the US Tech 100 (Nasdaq 100) surged 6.97%. The US 500 (S&P 500) gained 5.27%. TheWall Street (Dow Jones) added 1405 points, or 3.4%.

Moody's downgrades US credit rating

Late on Friday, Moody's downgraded the US credit rating to 'Aa1' from 'Aaa', citing the government's rising debt levels. The downgrade comes as Congress progresses President Trump's tax bill. This legislation includes permanent tax rate reductions and temporarily eliminates taxes on tips and overtime. while increasing the debt ceiling by $4 trillion.

Moody's is the last of the big three rating agencies to downgrade the US after Standard and Poor's in 2011 (from AAA to AA+) and Fitch in August 2023 (from AAA to AA+).

Market reaction and economic insights

The fallout has resulted in risk aversion flows to start the new week:

• US 500 futures have tumbled 0.75% to 5931
• US Tech 100 futures are trading 1.07% lower at 21,280

In the fixed income market, yields from the middle to the long end of the US rates curve are pushing higher, flashing warning signals:

• The yield on the 10-year is up 4 basis points (bp) to 4.49%
• The yield on the 30-year is trading 6 bp higher at 4.97% - eyeing the year-to-date 5.02% high.

Trade announcements on the horizon

Looking ahead, President Trump has said he plans to announce tariff rates for US trading partners within the next two to three weeks, while indicating that the US and European Union (EU) have initiated 'serious trade talks.' Meanwhile, US and Japanese finance ministers are scheduled to meet this week to continue trade discussions, which appeared to have stalled.

On the data front, flash purchasing managers' index (PMI) readings will be watched for insights into economic uncertainties and potential tariff-related price pressures, although given last week's rollback in tariffs, these readings will likely be considered outdated.

Earnings reports from Target, Home Depot, and Lowe's will be in focus after Walmart's warning last week about potential price hikes due to high tariffs.

US Tech 100 technical analysis

Last Monday's gap higher in the US Tech 100 brought some much-needed clarity to the charts. The emphatic break above the 200-day moving average (MA) now at 20,238, negated the downside risks. It indicated that the correction from the 22,222-record high ended at the 16,542 low and that the uptrend has resumed.

From an Elliott Wave perspective, the rally from the 21 April 17,592 low displays impulsive Wave III type characteristics, which also supports the idea that the uptrend has resumed. A Wave IV pullback should follow, taking the US Tech 100 back into the 20,500 - 20,250 support area, before the uptrend resumes as shown on the chart below.

A sustained break below the support provided by the 200-day MA at 20,238, followed by a sustained break below the medium-term support 19,250/19,150 area, would result in a more neutral bias.

US Tech 100 daily chart

US 500 technical analysis

Last Monday's gap higher in the US 500 brought some much-needed clarity to the charts. The emphatic break above the 200-day MA at 5759 negated the downside risks and indicated that the correction from the 6147 record high ended at the 4835 low and that the uptrend has resumed.

From an Elliott Wave perspective, the rally from the 21 April 5101 low displays impulsive Wave III type characteristics, which also supports the idea that the uptrend has resumed. This should be followed shortly by a Wave IV pullback, taking the US 500 back into the 5820 - 5780 support area, before the uptrend resumes as shown on the chart below.

A sustained break below the short-term support provided by the 200-day MA at 5760, followed by a sustained break below medium-term support 5500 - 5480 support area, would result in a more neutral bias.

US 500 daily chart

• _{Source: TradingView. The figures stated are as of 19 May 2025. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}