Markets Rise, Yet U.S. Debt Rating Sparks Caution
Market Recap for the Week of May 18, 2025
US stocks had another good week, with the S&P 500 gaining a little more than 2% over the full trading week. The index crossed into positive year-to-date (YTD) territory last week. Despite all the volatility and the ongoing turmoil caused by the major tariff announcement, if you had invested in stocks at the beginning of the year and simply held, you would currently have a return of roughly 1.60%. However, the volatility may not be over yet. The credit rating agency Moody’s downgraded U.S. government debt late on Friday, which triggered an almost 1% decline in after-hours trading.
To put this into perspective, Moody’s rates debt on a 21-notch scale. This downgrade brought the U.S. from the highest position on the scale to the second highest. Additionally, the other major credit rating agency, Standard & Poor’s, had already downgraded U.S. government debt back in 2011. Bottom line: the credit rating agencies are expressing concerns about the level of U.S. government debt and the growing cost to service that debt. Back in 2011, the S&P 500 index lost nearly 7% on the first trading day after the downgrade. However, that reaction was likely exacerbated by the fact that we were still emerging from the depths of the financial crisis. I cannot predict how the market will react on Monday, but what I do know is that stocks are always volatile in the short term.
“Stocks moved into positive territory for the year, but Moody’s U.S. debt downgrade is a reminder that volatility is never far away.”
Chart of The Week
The chart of the week comes from Ben Carlson at A Wealth of Common Sense. It is, once again, a warning against trying to time the stock market. The red line shows what your year-to-date returns would have been if you had invested in the S&P 500 index and remained fully invested all year. Despite the volatility, you would currently have a positive YTD return.
The black line shows a hypothetical investor who went to cash right when the market was at its low point, then re-entered just one day later. This move to cash may have felt justified to many, as there was still a lot of negativity surrounding the tariff story, and conditions were deteriorating daily. Personally, during that period, I felt very bearish about the U.S. stock market—there were many legitimate reasons to be concerned. However, I do not let my feelings drive my investment decisions, so I remained invested. Then, in a single day, the U.S. stock market gained 10% when the White House announced a 90-day pause on the new tariffs.
The black line illustrates what your returns would have looked like if you had missed just that one day. This is why timing the market is so difficult: sometimes it feels obvious that the market is going to move lower—or higher—but then the opposite happens. Bottom line: the performance of the stock market is not directly correlated to the performance of the economy. So even though the tariffs are likely to cause more pain for the U.S. economy, that doesn’t necessarily mean the market will continue to drop.
The commentary in this blog is for informational purposes only and should not be taken as personalized investment advice
Source: © Exhibit A, FactSet Research Systems Inc., Standard & Poor's | [Latest: 2025-05-14]
This slide is for informational and illustrative purposes only. The data provided is believed to be accurate, but there is no guarantee of its accuracy, completeness, or timeliness. This is not a recommendation or offer of any financial product. Past performance is not indicative of future results, and investors should consider their own objectives and risk tolerance. Indices, if presented, do not include fees, are unmanaged, and not available for direct investment.
Definitions & Methodology: The S&P 500 tracks the performance of 500 large-cap U.S. companies, serving as a benchmark for the U.S. stock market. The index is weighted by market capitalization. The chart displays year-to-date total return path of the S&P 500 (staying fully invested) vs the S&P 500 (missing the best day of 2025, which was 4/9). This chart illustrates how consequential missing just the single best day of a given year can be to returns.
