Moody's Downgrades Top Banks as Retail Investors Rally with Record Stock Buying

Moody’s Ratings has downgraded the deposit ratings of major U.S. banks, including Bank of America Corporation (NYSE:BAC), JPMorgan Chase & Co. (NYSE:JPM), and Wells Fargo & Company (NYSE:WFC), following the recent downgrade of the U.S. credit rating. Citing a reduced capacity of the government to support these institutions, Moody’s lowered these banks’ long-term deposit ratings by one notch to Aa2, its third-highest rating tier.

In addition, Moody’s downgraded the senior unsecured debt ratings of select subsidiaries and branches of Bank of America and Bank of New York Mellon, also reducing them from Aa1 to Aa2. The agency further downgraded the long-term counterparty risk ratings for certain units of Bank of America, BNY Mellon, JPMorgan, State Street, and Wells Fargo to Aa2 from Aa1.

Moody’s delivered a setback to Washington on Friday, May 16, by downgrading the U.S. credit rating from the highest level to AA1, making it the final member of the big three rating agencies to strip the U.S. of its triple-A status. The move initially rattled markets on Monday morning, though stocks later rebounded by the end of the trading day. Following the news, gold prices climbed over 1% on Monday, supported by a softer U.S. dollar and increased demand for safe-haven assets.

Moody’s downgrade of the U.S. credit rating turned out to be a major buying opportunity for retail investors. Following the announcement, individual investors jumped into the market, continuing their trend of buying the dip amid recent market swings. According to data from JPMorgan’s trading desk, retail traders purchased a net $4.1 billion worth of stocks between the market open and 12:30 p.m. ET on Monday, which is the highest amount ever recorded for that time frame and an extremely rare move, exceeding 11 standard deviations. By the end of the trading session, their net purchases reached $5.4 billion. Retail investors also accounted for 36% of the day’s total trading volume, setting another record.

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