2025-07: Credit risk driving US equity: credit rating of AAPL, MSFT, NVDA as good as US financial stocks
The credit rating agency S&P Global Inc SPGI has remained as top computed causal predictor for the US three stock indices over last one month (forecast target time: the day in six months from the latest market close).
The identified causal predictors for the Nasdaq 100 ETF QQQ, S&P 500 ETF SPY, Dow Jones Industrial Average ETF DIA:
As the US interest rates are still high, gold has appreciated 25% since the 2024 election month which makes it a strong contender for investment (over others), and amid US tariffs that perturb the (old) economic production, the credit risk (on bonds, but also equity) may be weighing.
What is credit risk?
Credit risk is the chance that a borrower does not repay a loan or fulfill a loan obligation. Wikipedia
For example, if the borrower is to repay $100 in 2 years, at an annual interest rate of 5%, the loan’s value is X today, such that
X * (1 + 5%) * (1 + 5%) = 100
X = 90.70
so the lender will lend $90.70, and expects to be paid $100 in 2 years.
But if the lender thinks there is some chance the borrower defaults on the loan, he may only be happy to lend out a smaller sum than $90.70, yet still expects to be paid back $100 in 2 years. Suppose a “credit risk spread” 2% is applied to the interest rate, the new value of the loan would be such that
X * (1 + 5% + 2%) * (1 + 5% + 2%) = 100
X = 87.34.
The money lent out today is smaller ($87.34 < $90.70) for the credit risk.
Moody’s downgrade of credit rating of the United States and its financial stocks
Moody’s is another major credit rating agency as S&P Global Inc. On 19 May 2025, they downgraded the credit ratings of the financial stocks JP Morgan, Bank of America, Wells Fargo to Aa2.
If one creates an account on https://www.moodys.com and searches for the credit rating of AAPL, MSFT, NVDA, whether rated by Moody’s, or implied from the market-traded prices of their bonds, they are at least as good as Aa2.
From a Moody’s methodology document, below is the scale of Moody’s long-term and short-term credit rating scores.
Since the 2024 US election, alternative currencies gold, bitcoin rallied.
BAC, WFC, JPM driven by SPGI and AAPL
Lastly, the prices of BAC, WFC, JPM on the day in six months are computed to be driven by SPGI and AAPL today.
References
Prediction of Gold vs Nasdaq 100 vs S&P 500 https://tsterm.substack.com/p/gold-vs-nasdaq-100-vs-s-and-p-500
Search for the Annual (10-K) or Quarterly (10-Q) Reports of US companies https://tsterm.substack.com/p/how-to-find-buffetts-aapl-holding
1930s US gold/silver nationalisation https://tsterm.substack.com/p/2024-11-bitcoin-driving-global-us
Moody’s rating methodology: short-term ratings https://ratings.moodys.com/api/rmc-documents/428088