U.S. stocks pared early losses Monday as investors largely shook off concerns about the U.S. government's growing debt problem. 

The S&P 500 was down about 0.3ꦬ% in recent trading after opening 1% lower. The tech-heavy Nasdaq Composite was off 0.4% and the Dow Jones Industrial Average was down jusᩚᩚᩚᩚᩚᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ𒀱ᩚᩚᩚt 0.1%. 

Monday morning’s dip came after Moody’s Ratings on Friday downgraded U.S. debt to AA1 from AAA, the highest possible rating. Moody’s is the last of the major credit agencies to lower its rating of U.S. Treasurys; Standard and Poor’s and Fitch did so in 2011 and 2023, respectively.

Moody’s cited “persistent, large fiscal deficits” for its downgrade. “We do not believe that material multi-year reductions in mandatory spending and deficits will result from current fiscal proposals under consideration,” the agency wrote, referring to the tax and spending bill making its way through Congress. The U.S.’s financial health is likely to deteriorate as the government’s debt and interest burden increase. 

The downgrade briefly rattled marketsౠ. The yield on the 10-year Treasury soared to a 3-month high of nearly 4.57% before retreating to about 4.51%, and the dollar slumped against most major currencies. 

“The Moody's downgrade of US debt doesn't tell investors anything they don't already know about the US's fiscal woes,” wrote Bank of America analysts in a note on Monday. BofA analysts don’t expect the downgrade to have much of a direct impact on the Treasury market since it won’t exclude U.S. debt from major fixed-income indexes. 

Oppenheimer analysts on Monday also noted the downgrade was unlikely to sting either the Treasury or stock market. Earlier downgrades from S&P and Fitch stirred up angst on Wall Street, but ultimately didn’t cause material damage to debt markets due to America’s “depth and breadth in accountability as well as comparative high levels of transparency in governance.” 

Oppenheimer analysts remain optimistic about the stock market’s outlook, and note “any near-term retracement on nervousness around the rating downgrade may be overstate🌳d.” They recommend “looking for ‘babies that get thrown out with the bathwater’ rather than broadly ‘buying the dips,’” considering elevated uncertainty.