Wall Street faced an uneven day Monday as investors reacted negatively to the U.S. government’s cred

Wall Street faced an uneven day Monday as investors reacted negatively to the U.S. government’s credit downgrade and a spike in Treasury yields before recovering in late-day trading.

The Dow Jones Industrial Average climbed 137 points, or 0.32%, while the S&P 500 and Nasdaq were relatively flat, climbing 0.09% and 0.02% to kick off the week.

Stocks reached positive territory after investors shook off a recent Moody’s credit downgrade from Aaa to Aa1. The rating agency cited high national debt and the government’s ability to deal with interest payments.

The rating brought Moody’s in line with other credit agencies that have given the U.S. its second-highest available rating.

The U.S. faces more than $36 trillion in debt, a level that’s risen in recent presidential terms under both parties.

Moody’s, in explaining the downgrade Friday, pointed in part at a possible extension of the 2017 GOP tax-cut bill, saying it would add $4 trillion to federal deficits over the next decade.

A House committee late Sunday advanced a large bill with the cuts and other programs, though the legislation will face fierce debate in the wider Congress.

The White House on Monday said the economy will be on good footing once the administration and GOP allies in Congress implement an interlocking agenda of tariffs to protect U.S. manufacturing, tax cuts and energy programs to lower costs.

“The world has confidence in the United States of America, in our economy, once again,” White House press secretary Karoline Leavitt said Monday.

She pointed to big-dollar investments from Middle East countries and major companies, plus recent inflation reports that were better than expected.

Council of Economic Advisers Chairman Stephen Miran told reporters that Moody’s tends to be “backward looking” and “late on these things.”

“The fiscal health of the United States deteriorated under President Biden, the explosion of the deficit to $2 trillion once you account for the student loan shenanigans during a peacetime expansion was just, nothing short of reckless,” Mr. Miran said.

“However, President Trump has a plan to address deficits, bring deficits down, and it’s going to be successful. And I think that part of the reason why there’s a lot of confusion in analysis of this stuff is because folks tend to overly credit [Congressional Budget Office] forecasts,” he said.

Treasury yields rose above the 5% mark amid fears that investors are dumping U.S. bonds.

The yields previously rose after Mr. Trump announced his “Liberation Day” tariff plan on April 2. Mr. Trump later suspended the hefty levies, citing in part the market reaction.

Mr. Trump is urging businesses and consumers to be patient. Over the weekend, he said Walmart should “eat” the cost of his tariffs after the giant retailer, citing the levies, said it would have to raise prices soon.

Tariffs are a tax or duty paid by importers on the goods they bring in from foreign markets.

Mr. Trump has characterized the tariffs as a cost borne by other countries. However, foreign nations don’t pay the tariffs directly to the U.S. Treasury.

In many cases, U.S. companies will pay the levies, and they might pass on at least some of the cost to consumers through higher prices.

“The president is committed to ensuring that prices remain low for American consumers and he maintains the position that foreign countries will absorb these tariffs,” Ms. Leavitt said.

The administration paused hefty “reciprocal” tariffs on countries that sell plenty of products to U.S. consumers but do not buy nearly as much from American producers. The 90-day freeze was designed to facilitate negotiations, but Mr. Trump in recent days said countries will likely be assigned a tariff number once again.

Meanwhile, the U.S. and China de-escalated a potentially crushing trade war, agreeing to reduce tariffs that exceeded 100% to 10% on American goods entering China and 30% on Chinese goods entering the U.S.

Efforts to negotiate a deeper, long-standing trade deal hit a roadblock on Monday, as Beijing accused the U.S. side of undermining the talks by advising other nations not to use Ascend computer chips from the Chinese company Huawei.

The U.S. Department of Commerce recently said use of the Huawei chips for artificial intelligence could run afoul of U.S. export controls.

“Tripping others won’t make you run faster,” a Chinese commerce ministry spokesman said Monday, according to state media.

Also Monday, Beijing’s foreign ministry weighed in on the recent credit downgrade and other economic turmoil.

“The U.S. should take responsible policy measures to keep the international financial and economic systems stable and protect investors’ interests,” said Chinese foreign ministry spokeswoman Mao Ning.

• Kerry Picket contributed to this report.