The Moody’s Downgrade Offers a Buy-the-Dip Opportunity BY LUCAS DOWNEY, EDITOR, TRADESMITH’S ALPHA SIGNALS This past week has reminded us that volatility can show up when we least expect it. The latest reason? Rising interest rates. Last Friday, May 16, Moody’s downgraded the U.S.’s credit rating, from Aaa to Aa1, citing that the one-notch downgrade reflects the increase over more than a decade in government debt and interest payment ratios. This action has caused interest rates to surge, with the U.S. 10-year Treasury yield breaking above 4.5%. Rising yields have battered stocks, with the S&P 500 falling 2% through Thursday. All other major indices aren’t doing much better: 
Sitting through volatility isn’t fun… unless you have a plan of action. That’s where we find ourselves today. Not only will we take a stroll down memory lane and size up prior U.S. credit downgrades, I’ll also offer up a roadmap for equities in the weeks and months ahead. Believe it or not, what’s happening today falls right in line with prior debt downgrades. Stick around and I’ll showcase one tech stock that could be a great way to play the eventual bounce in markets. And the evidence shows that it’ll be here before you know it. Recommended Link | | | | After President Trump’s bombshell tariff announcement, millions of folks saw their wealth erased overnight. But Louis Navellier warns that the real threat to American livelihoods has nothing to do with tariffs – and could leave folks in danger long after the panic subsides. Click here to learn how to prepare for challenging conditions. |  | |
As Interest Rates Rise, Stocks Fall Since Moody’s downgrade, the U.S. 10-year yield has popped 14 basis points to 4.58% as of this writing. Check it out: 
This has been the noose around the market’s neck. In the relationship chart below, as rates rip, large-cap stocks (S&P 500) dip: 
Now, at first glance, it’s unsettling. No one knows where rates are going to eventually go. That said, we can review prior debt downgrades and learn a thing or two about today’s situation. Do interest rates rise when the U.S.’s credit is cut? Mostly yes. We’ve had two prior rating cuts. One was from S&P in 2011, and another was from Fitch in 2023. Turns out, the last time the U.S. had its rating slashed, yields ripped… similar to now. On Aug. 1, 2023, Fitch downgraded the country’s debt. At the time, the U.S. 10-year yield sat at 3.95%, and over two and a half months, yields jumped to 4.95%: 
Now, to be clear, I’m not calling for 100 basis points of added yields. What I’m highlighting is that maybe today’s situation isn’t as dire as the talking heads proclaim. In fact, I’d venture to say that today’s equity environment is tracking history to a tee. And there’s a repeatable pattern that we spotted. If you’re like me and enjoy a buy-the-dip opportunity, you’ll like the following signal study. How Stocks Perform After a U.S. Credit Downgrade The U.S. has had its credit rating downgraded only three times. Once by Standard & Poor’s (S&P) on Aug. 5, 2011, and once by Fitch on Aug. 1, 2023. The Moody’s downgrade marks the third time. Here’s what’s interesting about credit downgrades… First, equities sputter in the first months post the downgrade. Second, that weakness eventually becomes a buy-the-dip opportunity, as equities are higher six and 12 months later. Here’s how the S&P 500 performs post a credit downgrade: - One month later, stocks fall 1.7% on average
- Three months later, equities drop 1.5%
- Six months later, stocks post a market-beating gain of 9.7%
- 12 months later, you’re staring at a 17.5% average jump
Now, this top-level view appears easy to handle. However, there’s more to the story. I took this study a bit further and analyzed shorter timeframes. And I found much more equity weakness in the first few weeks post a credit downgrade. For this study, I included the Nasdaq 100 to give us a better overall picture. Here’s how the S&P 500 and Nasdaq 100 perform in the weeks after a U.S. credit downgrade: - One week later, both indices are down 1.7%
- Two weeks later, we see an average fall of 4.7% for the S&P 500 and 5.7% for the Nasdaq
- Three weeks later, both indices drop around 3%
Sounds scary, right? Just don’t get too bearish… Because this weakness spills into big gains, with both major indices climbing six and 12 months later: 
The red circle above highlights the simple idea that today’s market sell-off falls right in line with history. So don’t get too discouraged by what the talking heads are spewing. This graphic also signals that better days are coming. Especially for those looking for opportunities. Apple Shares Are Looking to Bounce After Seven Days of Losses In all of this equity carnage, some stocks are being punished more than others. Apple (AAPL), the maker of iPhones, is one of them. I’m sure you’re well aware of Apple’s products, as they dominate the smartphone market with a 19% global share. This iconic phone represents 51% of the company’s roughly $400 billion in sales last year. One-quarter of its sales come from its services segment, proving that customers continue to rely more and more on Apple’s offerings. And with Apple planning to add more AI capabilities within its iOS ecosystem, it’s just a matter of time before this stalwart starts growing again… And consumers start upgrading their hardware. But investors have been tired of waiting. Shares have dropped 20% in 2025 compared to the S&P 500’s flat performance: 
Just on Friday, a headline read that President Donald Trump is threating a 25% import tax on Apple unless it make its iPhones in the U.S. That further pressed AAPL shares. However, hidden inside of this downdraft is the fact that shares have fallen seven days consecutively. We were able to find 14 prior instances where AAPL shares dropped seven sessions in a row. Here’s how Apple shares perform after falling seven days consecutively: - 1 week later, shares bounce 3.6%
- 2 weeks later, shares jump 5.7%
- 1 month later, the stock climbs 6.4%
- 2 months later, AAPL shares bounce 11%
And it’s important to note, the positive win rate is above 64% in all periods: 
If you ask me, Apple is a shiny opportunity in this market pullback. So, let’s summarize everything: - Stocks are dropping due to rising rates
- Stocks may be under pressure near-term given the Moody’s credit downgrade
- Stocks eventually jump months later
- And Apple is under pressure to the likes rarely seen… with a solid signal study
Look, no one has a crystal ball. No one can predict the future. But evidence-based analysis offers the best answers to the unknown. That’s where TradeSmith shines with traders. And even though Trump is threatening Apple with tariffs on its Chinese-made iPhones… The mainstream media is missing the bigger picture. Major tech companies like Apple as well as Nvidia and Taiwan Semiconductor are pledging almost $2 trillion toward U.S. investments while Trump is busy making trade deals with China, the U.K., and other countries around the world. And according to Louis Navellier of InvestorPlace, this is just the beginning. Louis is predicting that Trump is about to make three new, big announcements that have the potential to unleash $10 trillion of new stimulus into the market. He’s calling this “Liberation Day 2.0.” And Louis believes there will be massive winners – and losers – in this new economy. Tomorrow at 1 p.m. Eastern, Louis will walk you through his full Liberation Day 2.0 blueprint of the biggest opportunities his Navellier Stock Grader is finding in this economic reset. To sign up for tomorrow’s free Liberation Day Summit, click here now. Regards, 
Lucas Downey
Editor, TradeSmith’s Alpha Signals Note from Ashley Cassell, Managing Editor, TradeSmith Daily: Speaking of alpha signals, there’s been an extremely strong one from our seasonality tool here at TradeSmith. Tesla (TSLA) has embarked on a seasonal window where it’s seen gains every time in the last 15 years – and nine of those have been in the double digits: 
Follow me on X, @KeithTradeSmith When one of these seasonal windows opens up, we like to confirm that historical signal by checking the current price momentum with the Relative Strength Index, as TradeSmith CEO Keith Kaplan noted in his tweet above. In fact, he’s finding all kinds of exciting charts that he’s been eager to share with you on his X account. You can click here to follow him there – Keith assured me that it’s free and always will be. | 
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