Futures for the Dow Jones Industrial Average dropped 250 points, or 0.58%. S&P 500 futures slipped 0.6%, while Nasdaq futures fell 0.61%.

The yield on the 10-year Treasury surged 4.6 basis point to 4.485% after Moody’s downgraded the U.S. credit rating one notch late Friday to Aa1 from AAA, the highest grade.

It cited “the increase over more than a decade in government debt and interest payment ratios to levels that are significantly higher than similarly rated sovereigns.”

The dollar fell 0.16% against the euro and 0.13% against the yen. Gold rallied 1.86% to $3,246.40 per ounce. U.S. oil prices were flat at to $62.50 a barrel, and Brent crude ticked up less than 0.1% to $65.45.

The stock market had been on a roll since Trump began pausing or rolling back some of his most aggressive tariffs. In fact, the S&P 500 is just 3% below its peak after staging a ferocious rebound, and some market veterans see more gains ahead.

On Friday, reports that the U.S. and European Union had begun serious negotiations gave markets a lift after rallying earlier this month on Trump’s de-escalation with China and a trade deal he made with Great Britain.

But on Sunday, Treasury Secretary Scott warned that any countries not negotiating in good faith will see tariffs snap back to “Liberation Day” levels, which triggered an epic selloff last month.

During an interview on CNN’s State of the Union, he added that there are 18 “important” trading partners the U.S. is most focused on, while there are a lot smaller ones for which “we can just come up with a number.”

“My other sense is that we will do a lot of regional deals — ‘this is the rate for Central America, this is the rate for this part of Africa,’” Bessent added.

The Moody’s downgrade could also limit how much additional upside stocks have, especially if it sends borrowing costs higher by spiking Treasury yields.

But some Wall Street analysts have said it doesn’t tell investors anything new and follows similar moves from Standard & Poor’s in 2011 and Fitch in 2023.

Meanwhile, the Republican-controlled Congress is trying to extend tax cuts from Trump’s first term and add new ones like ending taxes on tips, overtime, and Social Security income. While lawmakers are also looking for spending cuts, with some even calling for tax hikes on millionaires to boost revenue, the total impact of fiscal proposals overall would add trillions to the budget deficit in the coming years.

That’s as the deficit has already topped $1 trillion so far this fiscal year and hit $2 trillion in prior fiscal years. Debt interest payments alone are now one of the biggest spending items, exceeding the Pentagon’s budget.

“Over the next decade, we expect larger deficits as entitlement spending rises while government revenue remains broadly flat,” Moody’s said Friday. “In turn, persistent, large fiscal deficits will drive the government’s debt and interest burden higher. The US’ fiscal performance is likely to deteriorate relative to its own past and compared to other highly-rated sovereigns.”