In a significant move, Moody's Investors Service downgraded the outlook of the United States' credit rating to "negative" from "stable" on Friday. This adjustment comes amid concerns regarding the country's fiscal deficits and debt affordability. Despite this outlook change, Moody's has maintained the AAA credit rating of U.S. government debt. Earlier this year, Fitch Ratings also took a similar step by lowering its rating of the United States from AAA to AA in August.

Continued Fiscal Deficits Pose a Key Concern

The decision by Moody's hinges heavily on the expectation that America's fiscal deficits will continue to be substantial. These deficits are seen as a primary factor significantly weakening the country's debt affordability. This outlook raises questions about the U.S. government's ability to manage its finances effectively in a challenging economic environment.

A Glimmer of Hope in Economic Strength

Despite these challenges, Moody's expressed some optimism. The agency expects the United States to retain its exceptional economic strength. Furthermore, Moody's suggests that positive growth surprises over the medium term could slow the deterioration in debt affordability.

Despite sticky inflation, U.S. consumers have been showing strong resilience. The National Retail Federation (NRF) stated that consumers are estimated to shell out between $957.3 billion to $966.6 billion during November and December. Thus, spending will increase between 3% and 4% over the same period last year (read: Wall Street Hits 2-Year Best Mark: Momentum ETFs to Play).

Better-than-expected earnings also added to the market strength. With more than 88% of the Q3 results already out, earnings growth for the quarter is on track to turn positive despite the significant Energy sector drag. This positive earnings growth in Q3 comes after three back-to-back quarters of declines.

About 85.9% of traders are sticking to their bet that there won't be a rate hike this year, and 10.8% expect a rate cut in March, according to the CME FedWatch tool. This belief has once again brought back optimism in the market.

Time for High-Momentum Tech ETFs?

These favorable conditions suggest that Wall Street is on the brink of a rally, presenting an opportune time to invest in Momentum ETFs. At present, tech ETFs have been at great momentum due to hopes for no rate hike this year. Several tech ETFs are trading at a one-month high. Investors with a strong stomach for risks may buy the weakened sentiments out of Moody’s downgrade and play the rallying tech ETFs as these have strong future potential.

“New normal” trends like work-and-learn-from-home and online shopping, increasing digital payments and growing video streaming are sure to stay here for long. The growing adoption of cloud computing and the ongoing infusion of AI, machine learning and IoT are the other winning areas in the tech investing.

ETFs in Focus

Vaneck Semiconductor ETF (SMH Quick QuoteSMH - Free Report) – Up 4.1% on Nov 10

Microsectors Fang+ ETN (FNGS Quick QuoteFNGS - Free Report) – Up 2.8% on Nov 10

SPDR NYSE Technology ETF (XNTK Quick QuoteXNTK - Free Report) – Up 2.8% on Nov 10

Bitwise Ethereum Strategy ETF (AETH Quick QuoteAETH - Free Report) – Up 2.7% on Nov 10

Information Technology ETF Vanguard (VGT Quick QuoteVGT - Free Report) – Up 2.6% on Nov 10