Behind the US stock market frenzy: vigilance! Three hidden worries are tearing apart investors' optimism

Can the market frenzy under the dawn of trade really last?

Last week, the three major US stock indexes collectively surged. The Dow Jones Industries Average Index, S & P 500 Index, and Nasdaq Index recorded gains of 3.4%, 5.3%, and 7.2% respectively, achieving their best weekly performance since the escalation of trade friction in April. On the surface, the market seems to be immersed in optimistic sentiment of “cooling down trade tensions”: heavyweights such as Goldman Sachs and Microsoft led the gains, tech giants rebounded and pushed the index higher, and even some analysts shouted astonishing predictions of “the S & P 500 may reach 7,000 points by the end of the year”. However, behind this carnival, three hidden worries are quietly emerging - debt rating downgrades, soaring inflation expectations, and divergent capital flows , which may become the last straw that crushes market sentiment.

Hidden worry 1: US sovereign credit “crown falls”, debt crisis surges

After the US stock market closed last Friday, Moody’s suddenly announced that it would downgrade the US sovereign debt rating from the highest Aaa to Aa1, citing “soaring interest costs and unsustainable debt growth.” Although US Treasury Secretary Scott Bessent responded lightly that “ratings are lagging indicators,” the market voted with its feet: the 10-year US Treasury yield jumped to 4.49%, and the 30-year yield approached the key psychological threshold of 5%. Franklin Templeton warned that if sovereign funds and large institutional investors begin to gradually sell US bonds and allocate to other safe-haven assets, it may trigger a “bear steep” spiral - that is, long-term yields accelerate, the US dollar depreciates, and ultimately weakens the attractiveness of the US stock market.

What’s even more serious is that the US Congressional Budget Office (CBO) warned as early as January that the scale of US government debt is expected to reach 107% of GDP in 2029, surpassing the historical peak after World War II. However, the political deadlock in Washington has not eased the fiscal crisis, and lawmakers are still pushing forward a tax and spending bill that could increase the deficit by $3.80 trillion in the next decade. Barclays analysts pointed out that although Moody’s downgrade will not immediately trigger a sell-off of government bonds, in the long run, the market’s trust in US fiscal discipline is collapsing. When the game of “borrowing new to repay old” becomes unsustainable, the liquidity feast of US stocks may come to an abrupt end.

Hidden worry 2: Consumer confidence collapses, inflation specter rises again

The latest consumer confidence index released by the University of Michigan in May plummeted to 50.8, hitting the second lowest level on record. More worrying is that inflation expectations for the next year have soared from 6.5% to 7.3%, and long-term inflation expectations have also risen to 4.6%. This data completely shredded the illusion of “economic soft landing”: ordinary households are reducing spending due to rising prices, and companies are forced to pass on tariff costs to consumers. Paul Christopher, global investment strategy director at Wells Fargo, warned: “We haven’t even seen the real impact of tariffs - when companies are forced to raise prices and consumers find fewer products and choices on the shelves, the economic recession will truly begin.”

More ironically, just as markets were cheering for a “trade truce,” Moody’s downgrade and soaring inflation expectations revealed a harsh truth: The Federal Reserve’s “higher for longer” interest rate policy and the government’s deficit binge are teaming up to strangle consumers’ purchasing power. Alexandra Wilson-Elizondo of Goldman Sachs Asset Management has pointed out that, with interest rates remaining high, markets could be volatile due to “the fickleness of trade negotiations.”

Hidden Worry 3: Smart Funds Quietly Retreat, Will Retail Investors Become the Last Buyers?

Although on the surface, funds are flowing back to US stocks - Bank of America cited EPFR Global data showing that about 20 billion US dollars flowed into US equity funds in the past week, but this may only be a short-term phenomenon. George Saravelos, global head of foreign exchange strategy at Deutsche Bank, found that the decoupling of the US dollar from US bond yields suggests that global capital’s interest in US assets is weakening. Lisa Shalett, investment director of Morgan Stanley’s wealth management department, bluntly stated that the slowdown in profit growth of the seven major tech giants (Apple, Microsoft, Amazon, Google, Meta, Nvidia, Tesla) will “block the further upward space of the stock market”.

More intriguing is what is happening in the derivatives markets: the Bloomberg dollar index has approached its April low, while options traders’ bearish sentiment on the dollar has reached its most pessimistic level in five years. European Central Bank President Christine Lagarde even publicly questioned: “The recent depreciation of the US dollar against the euro seems abnormal, but it reflects the loss of confidence in US policy uncertainty by Financial Marekt.” When institutional investors start hedging risk with derivatives and retail investors continue to chase high, history tells us that the turning point in the market may be near.

BiyaPay users can capture the movement of institutional funds in a timely manner through the fund flow monitoring tool provided by the platform. The platform’s one-stop investment services, including various asset classes such as US stocks, Hong Kong stocks, and digital currencies, provide investors with more flexible risk diversification options.

Summary: Optimists earn volatility, pessimists earn cycles

The current rebound in the US stock market is essentially a liquidity illusion created by the “trade expectation gap” and the “financial report gap period”. However, the three major hidden worries - debt rating downgrade, resurgence of inflation, and divergence of capital flows - have planted a time bomb for the market. The vision of “S & P 500 reaching 7,000 points by the end of the year” advocated by optimists such as Louis Navellier, founder of Navellier & Associates, may only be realized in the dream scenario of “Trump’s massive tax cuts + regulatory relaxation”; while Moody’s downgrade is more like a warning bell: when the world begins to question the US’s solvency, any technical rebound may become a chance to escape.

For investors hoping to layout US stocks through BiyaPay , it is now more important to stay calm. The intelligent investment advisory services and risk management tools provided by the platform can help investors stay rational in the market fluctuations. As Keith Lerner, Co-Chief Investment Officer of Truist Advisory Services, said: “This will not change the rules of the game, but it gives investors the perfect excuse to take profits.” At the crossroads of revelry and panic, vigilance is more important than greed.