Good Morning Investors,
The week opens with a jolt. U.S. equity futures tumbled early Monday after Moody’s stripped the U.S. of its final AAA credit rating, cutting it to Aa1 and citing the federal government’s growing fiscal burden, rising interest costs, and political gridlock. The reaction was swift: the 30-year Treasury yield spiked above 5%, the 10-year pushed through 4.5%, and futures turned sharply lower.
Dow futures are off nearly 300 points, the S&P 500 down 1.1%, and the Nasdaq futures weaker by 1.5% as rising yields once again threaten to reverse the momentum that powered last week’s rally.
Before the Bell
Equity futures are deep in the red, led by rate-sensitive tech stocks. Nvidia, Tesla, and Palantir are all down 3–4% in early trade. Treasury yields are moving sharply higher, with the 10-year note trading around 4.55% and the 30-year above 5%. The dollar is steady, while oil slips and gold catches a bid amid safe haven flows.
European markets are softer as well, snapping a five-week winning streak. Disappointing Chinese data and Moody’s downgrade are weighing on risk sentiment globally. Asian equities were mixed overnight, with Japan down and China flat.
Moody’s Downgrade: The Slow Burn Begins
Moody’s late-Friday decision to downgrade the U.S. debt rating was widely anticipated, but the timing ensured markets would need the full weekend to digest it. The downgrade brings all three major rating agencies into alignment, and the reasons are familiar: chronic deficits, surging interest costs, and lack of political appetite for fiscal reform.
This wasn’t a bolt from the blue—Moody’s had already placed the U.S. on negative outlook last November. But the message is now formalized: the fiscal trajectory of the U.S. is fundamentally out of step with other top-rated sovereigns. Federal deficits are projected to hit 9% of GDP by 2035, and debt-to-GDP is expected to rise from 98% today to 134% within a decade. The real risk isn’t default—it’s crowding out, where ballooning interest costs begin to displace private investment.
It’s important to recall how past downgrades have played out. After the S&P downgrade in 2011, the S&P 500 dropped 6.6% the next day and 17% in the weeks that followed. After Fitch’s cut in 2023, equity markets wobbled and bond yields surged to multi-decade highs. This time, with no AAA rating left and Treasury demand already under scrutiny, Moody’s downgrade may not trigger a crash, but it does reinforce a growing unease about U.S. fiscal credibility.
What to watch next: if yields break higher from here, especially the 10-year past 4.6% or the 30-year through 5.1%, the pressure on equities could intensify. The VIX is subdued for now, but that calm may be deceptive. The downgrade won’t force liquidations, but it could gradually raise the cost of capital and chip away at risk appetite. In short, this isn’t the spark for a fire, but it may be the kindling.
Nvidia’s New Moves
In the midst of market nerves, Nvidia (NVDA) held the spotlight at Computex 2025 with a flurry of product announcements designed to extend its dominance in AI infrastructure.
Chief among them: NVLink Fusion—a new platform that allows Nvidia’s GPUs to be paired with third-party CPUs and ASICs in semi-custom AI systems. This opens the door to hybrid architectures and lets Nvidia remain central to AI infrastructure even when it isn’t the full-stack supplier. Early partners include MediaTek, Marvell, Qualcomm, and Fujitsu.
Nvidia also unveiled updates to its Grace Blackwell systems, announced its new DGX Cloud Lepton platform, and committed to building a new AI supercomputing hub in Taiwan alongside Foxconn. These developments solidify Nvidia’s role as the orchestrator of next-generation AI data centers.
While NVLink Fusion could reduce demand for Nvidia’s own CPUs, it vastly expands the company’s TAM by integrating its GPUs into more diverse systems. I maintain my $180 price target and see $152 as an achievable short-term level.
Qualcomm Re-Enters the Data Centre
Qualcomm (QCOM) made its long-anticipated return to the data center market, announcing a new line of CPUs designed to connect seamlessly with Nvidia’s GPUs and software. The strategy? Offer a compelling, power-efficient alternative in a CPU market dominated by Intel, AMD, and now custom silicon from hyperscalers.
This follows Qualcomm’s partnership with Saudi AI firm Humain and highlights its broader push to diversify beyond mobile. Qualcomm’s entrance may be late, but the data center remains a fast-growing market, and partnerships with Nvidia give it instant relevance.
The Rebound May Pause Here
Last week’s rally was stunning—the S&P 500 surged 5.3%, the Nasdaq 7.2%, and the Dow 3.4%. A combination of cooling inflation, a 90-day tariff truce, and strong tech earnings fueled optimism and helped erase year-to-date losses. Nvidia, Tesla, and Microsoft led the charge.
But we’re now at a technical inflection point. The 10-year yield is back above 4.5%. The 200-day moving average is in sight. If yields keep climbing, equities could enter a new period of risk-off retracement. I still expect a retest of the 200-day sometime in the coming weeks.
That said, I remain a buyer on weakness. The structural AI tailwinds remain intact. Rate cuts are delayed but not off the table. And trade negotiations, while uncertain, are improving. Moody’s downgrade doesn’t change the growth trajectory—it adds another layer of complexity to an already fragile macro picture.
Closing Thoughts
Moody’s decision to downgrade the U.S. may not be the straw that breaks the camel’s back, but it could be the brick that chips away at confidence over time. It reinforces the uncomfortable truth: fiscal policy is a growing liability, and the U.S. can’t count on endless demand for its debt.
Unlike in 2011 or 2023, we’re not in a crisis, nor are markets asleep. But with all three major rating agencies now in agreement, and with no AAA rating left to cling to, investors must start pricing in a future where Treasury yields remain structurally higher.
This doesn’t mean panic, but it does mean vigilance. If the U.S. faces a prolonged period of high issuance, tepid demand, and persistent inflation pressures, then higher borrowing costs become the new baseline. That shifts the calculus on equities, particularly for growth names.
Use any near-term volatility to upgrade portfolios, not abandon them. Stick with quality, favour cash flow, and remain overweight companies that benefit from AI investment and margin expansion. The downgrade is symbolic, but symbols matter, especially when they start aligning with reality.
Dan Sheehan
This newsletter is for informational purposes only and should not be considered as investment advice. Please consult with your financial advisor about your specific situation.