As we approach the midpoint of the year, the S&P 500 has already made a full recovery (as of May 13th) from its 15.28% decline, and the index seems to be itching to get to its prior all-time-high that was set on February 19th.
International stocks are up 14% in 2025 and the total bond market is up over 2%. The tech-heavy Nasdaq index has also stuck its head above water and is back in positive territory for the year.
Zooming out 5 and 10 years, the S&P 500 is up 124% and 235% respectively.
Ask Cale
Q. I heard that the US credit rating was downgraded by Moody’s. Is this concerning?
A. No.
The United States need never default. It can always pay its debts by printing more money. The result of this is inflation, not insolvency. Inflation is an entirely different issue.
Moody’s assigns a credit rating to companies based on their assessment of a company’s ability to repay its debt. If a company doesn’t have enough money to pay its loans, then the company will default on the loan and go bankrupt. By contrast, the United States can simply create more money to cover any shortfall.
Moody’s is the last of the three credit-rating agencies to downgrade the US debt. S&P downgraded it in 2011 and Fitch downgraded it in 2023.
The language in Moody’s press release does not cause concern. The downgrade “reflects the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns,” and states “the US retains exceptional credit strengths such as the size, resilience and dynamism of its economy and the role of the US dollar as global reserve currency.”
While I agree that the US debt is too large (and can cause problems like inflation), the chance of a US default does not keep me awake at night.
