Monday Takeaways: Bulls Accelerate Through Moody’s Caution Flag

Shah Gilani|May 19, 2025

The melt-up continues despite Moody’s late-to-the-party downgrade…

Markets are over 20% higher from Liberation Day Blues, looking like a rocket taking off with five straight days of gains last week.

But Friday’s surprise move by Moody’s – downgrading the U.S. from AAA to AA1 – has sent Treasury yields jumping…

• 30-year yields back up knocking on 5%
• 10-year yields north of 4.54%
• Futures down more than 1% across indexes Monday morning

Should you be concerned? History tells us something different…

When S&P downgraded the U.S. in 2011, markets rallied for the next decade. When Fitch downgraded in August 2023, no recession followed.

With the S&P inches from new record highs but Goldman calling for a 20% pullback, is it time to be aggressive or cautious?

Click on the image below to discover why this week might not be the time for heavy capital allocation.

Transcript

Everybody, Shah Gilani here with your Monday Takeaways.

The first takeaway from last week is, the melt up continues.

We are slightly more than 20 percent higher from Liberation Day Blues. Yes, that’s a heck of an ascent. And if you look at a chart, it looks like a rocket taking off. So a five-day run last week and a gap to go along with it, and markets just look like they want to go up.

That’s the takeaway.

We are inches away from a new record high on the S&P. Now, yes, there’s some resistance getting to the old highs, and we’re seeing some resistance this morning in the futures. It’s early Monday morning as I’m recording this for you guys, and guess what? That wasn’t the only thing that happened last week. Besides the melt up at the end of the day Friday, Moody’s throws a damper into the whole wash, and it’s a stinky cloth, and it is a downgrade of the U.S. ratings from their highest AAA to AA1.

Now they’re a little late to the game as far as downgrades go. S&P downgraded the U.S. in August of 2011. As an FYI, what downgrades have done in the past, the recent past, I should say, from 2011 to present, how about nothing? How about the stock market just continued to rally?

How about the economy grew from 2011 into the 2020s until the pandemic, really? So that downgrade didn’t do anything. The next downgrade was Fitch. That was August of 2023.

We haven’t had a recession since then. So Moody’s downgrade on Friday.

Well, it’s impacting markets this morning. The 30-year Treasury yield is back up knocking on 5 percent.

The 10-year Treasury yield is back north of 4.50, so about 4.54 this morning. So, yes, it’s having an impact and futures are down more than a percent across the board on the different indices. So there seems to be a bit of a pushback based on Moody’s downgrade. But history tells us that really shouldn’t happen, and it isn’t really sustainable in terms of hitting markets.

Markets have other things to worry about. Yes, they’re worried about the deficit. They’re worried about what the impacts will be of the existing tariffs that were put on.

Goldman Sachs for one says 45 percent chance of recession. Because of that, they were very bearish last week, also calling for a 20 percent downturn in stocks from here. So Goldman not so sanguine. Goldman a little bit of tarnish on an otherwise very, I would say, handsome trophy considering how far we’ve come off of the Liberation Day lows. So your takeaway from that is got a mixed bag ahead of us this week. Not a lot of data coming out this week, so it’s going to be about what’s happening in Congress, what’s happening geopolitically. We know there’s a lot of stuff happening in the Middle East now because the president had a pretty successful trip there, making overtures to Syria and Iran.

Lots of stuff going on. More chips to Saudi Arabia. A lot of good stuff going on, and Nvidia just moved through the ceiling last week. A lot of good stuff going on, but then you got these kind of clouds forming, and that makes me a little cautious this week.

So your takeaways from all that are I think just mind your P’s and Q’s this week, and maybe not a time to do a lot of heavy capital allocation. That’s it for this week. I’ll catch you guys next week. Cheers.