Due to investors' concerns about the U.S. debt issue, the upcoming new budget, and escalating trade conflicts, global asset prices experienced significant volatility early this week. The U.S. stock market initially dropped sharply on Monday morning but gradually stabilized. The S&P 500 index was nearly flat around 2 PM, having fallen nearly 1% earlier in the day. The Nasdaq index rebounded to last Friday's closing level after dropping 1.3% at the opening.
The cryptocurrency market was similarly affected. Bitcoin dropped early Monday morning but recovered some losses by afternoon, trading slightly above $105,000, approximately 1% down from Sunday's high.
One trigger for market volatility was Moody's announcement after market close on Friday, downgrading the U.S. government's credit rating from the highest AAA to Aa1, indicating a slight increase in risk. Analysts widely view this as the primary reason for Monday morning's stock market decline and rising U.S. Treasury yields.
Moody's attributed the downgrade to the U.S.'s continuously expanding fiscal deficit and rising debt interest liabilities. In fact, two of the three major U.S. credit rating agencies had previously made similar decisions; S&P Global Ratings downgraded the rating in 2011, and Fitch Ratings also downgraded in 2023.
The second market trigger was Trump's Big, Beautiful Tax Bill being questioned by both the House and Senate, which is believed to increase the federal deficit and is currently under revision to gain bipartisan support. The following is an analysis and report.
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