The ‘Sell America’ Trade Makes a Comeback

Even before Moody’s had downgraded the U.S. credit rating last week, Speaker Mike Johnson faced a tough fight to pass a major spending package.Credit…Al Drago for The New York Times

Markets get bearish on the U.S.

The “sell America” trade is back in focus on Monday. Investors are bracing for a triple threat of an inflationary trade war, President Trump’s tax cut plan swelling the federal deficit, and fallout from Moody’s cutting America’s triple-A credit rating.

That adds pressure on the White House to make trade deals, and on House Speaker Mike Johnson to win over Republican fiscal hawks to make Trump’s big campaign vow — permanent tax cuts — a reality.

The latest: S&P 500 futures, oil, the dollar and Bitcoin are all down. More worryingly, investors are selling government bonds, with the yield on the 30-year Treasury climbing above 5 percent, surpassing the level it reached in April when Trump unveiled his reciprocal tariffs. The administration quickly paused the levies after turmoil in the bond market, with Trump acknowledging that investors “were getting a little bit yippy, a little bit afraid.”

Wall Street has been watching to see how bond vigilantes respond to Trump’s domestic policy campaign, especially if it stokes inflation and adds to the deficit.

The downgrade was hardly a surprise. Moody’s put the U.S. on its watch list in November 2023, and the other major ratings agencies, Standard & Poor’s and Fitch, made a similar move years ago.

Still, the decision shifts investor attention to deficits and America’s fiscal problems, especially as doubts grow that Trump’s tariffs will be the revenue-generator he’s long promised.