U.S. equities turned modestly positive by early afternoon trading Monday, as investors largely dismissed a long-anticipated downgrade of U.S. sovereign debt by Moody’s and instead shifted their focus toward easing trade tensions and softening tariff impacts.

As of 1:30 PM ET, the Dow Jones Industrial Average was up 171.94 points, or 0.40%, to 42,826.7. The S&P 500 advanced 7.93 points, or 0.13%, to 5,966.31, while the Nasdaq inched higher by 7.21 points, or 0.04%, to 19,218.3. The Russell 2000 lagged, slipping 1.04 points, or 0.50%, to 208.81.

The relatively muted gains stand in stark contrast to a rocky morning open, when equities slipped following Moody’s decision to cut the U.S. long-term issuer and senior unsecured ratings to Aa1 from aaa. The downgrade brings Moody’s in line with S&P and Fitch, both of which had previously downgraded U.S. debt in response to concerns over rising deficits, entitlement growth, and surging interest costs.

While Moody’s emphasized that the move was not a judgment on the broader U.S. economy—retaining a “stable” outlook due to the strength of the dollar and the Federal Reserve—it underscored the unsustainable nature of current fiscal policy. The agency warned that persistent deficits could push federal debt to 134% of GDP by 2035, with interest payments alone consuming nearly one-third of federal revenue.

Initial market reaction reflected these concerns, with Dow futures down more than 300 points before the opening bell. However, equities stabilized as the trading day progressed, suggesting that many investors had already priced in the downgrade and were now focusing on more immediate catalysts.

One such catalyst came in the form of trade news. The White House sought to calm markets by emphasizing the benefits of a recently agreed 90-day pause in U.S.-China tariffs. Press Secretary Karoline Leavitt stated that China-based producers are expected to absorb the costs of the tariffs, signaling a potential easing in consumer price pressures.

The pause, effective since May 14, lowered U.S. tariffs on Chinese goods to 30%, with China reciprocating by cutting its tariffs on American exports to 10%. “This development has significant implications for the global supply chain and the economic landscape,” analysts noted, with some relief seen across retail and manufacturing sectors.

Retail giant walmart has indicated that while it may absorb some of the tariff costs, prices could begin to rise by the end of May. The company’s CEO Doug McMillon warned of a potential squeeze on consumer spending—though for now, the immediate risk appears tempered by the tariff truce.

Experts remain cautious about the longer-term picture. “The downgrade may not be an inflection point, but it is a stark warning,” as noted by bank of america economist Aditya Bhave. He emphasized that tax cuts and tariff revenues alone cannot offset the rising burden of unfunded commitments.

Still, Monday’s market performance suggests that investors are willing to look past Moody’s decision for now, instead monitoring fiscal negotiations in Washington and developments on the global trade front. With the House Budget Committee pushing forward a reconciliation bill that would extend the 2017 tax cuts, political wrangling over fiscal priorities remains a key variable.

As the session continues, the focus will remain on whether today’s modest gains can hold—particularly in light of tightening financial conditions and a shifting geopolitical backdrop. For now, Wall Street seems content with a cautious drift upward.