Facts
- The United States has lost its AAA credit rating from Moody’s, and U.S. stock index futures opened lower on Monday, May 19; around 10:30 a.m., the US500 futures contract was down -1.29%.
- The US500 (S&P 500 futures contract) has strongly rebounded from its local low of approximately 4,840 points on April 7, 2025, to around 5,900 points currently.
- According to estimates by The Budget Lab (Yale University), despite the tariff reductions between the U.S. and China in May, 40% of the negative effects of the ‘trade war’ will still impact the U.S. economy.
- The Budget Lab indicates that the average U.S. tariff rate currently stands at 17.8% (down from 27.6% before the reductions on Chinese imports) – still the highest since 1934.
- The Budget Lab estimates that the current tariff levels increase the PCE inflation rate by 1.7% and reduce the average annual disposable income of U.S. households by around USD 2,800.
- They also estimate that U.S. unemployment could rise by 0.4 percentage points this year, corresponding to a loss of approximately 456,000 jobs.
Recommendation
- Short position on US500, at market price
- Stop loss: 5,980
- Take profit: 5,740
Opinion
The US500 contract is retreating after climbing toward the 6,000-point level. On Friday, Moody’s downgraded the U.S. credit rating, citing the rising fiscal deficit. While the downgrade itself is not necessarily negative for equities and may not trigger major changes in the bond market, on Monday we’re observing profit-taking pressure.
If Moody’s decision coincides with a broader market reassessment of the sustainability of the recent rally (especially considering that, as estimated by The Budget Lab at Yale University, many of the negative effects of trade tariffs have yet to fully materialize in the U.S. economy), we can expect the index to retest the EMA200 (red line) near the 5,740-point level.
We recommend opening a short position on US500 at market price, with a stop loss at the recent local high near 5,980 and a take profit target at 5,740 – positioned between the 71.6% and 61.8% Fibonacci retracement levels of the recent upward wave and aligned with the exponential moving average EMA200.
Source: xStation 5
