{"id":43759,"date":"2023-08-02T23:16:39","date_gmt":"2023-08-03T03:16:39","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/the-sp-500-fell-7-after-the-last-u-s-credit-downgrade-what-happens-next\/"},"modified":"2023-08-02T23:16:40","modified_gmt":"2023-08-03T03:16:40","slug":"the-sp-500-fell-7-after-the-last-u-s-credit-downgrade-what-happens-next","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=43759","title":{"rendered":"The S&P 500 Fell 7% After the Last U.S. Credit Downgrade. What Happens Next."},"content":{"rendered":"
\n
<\/p>\n
<\/p>\n<\/figure><\/div>\n

Fitch lowered the credit rating of the U.S. from AAA to AA+. The downgrade should do little to derail confidence in the country, even if it is hitting markets, and appears to have more to do with Washington than economics. <\/p>\n

At the fore of Fitch\u2019s rationale is what it calls an erosion of governance. \u201cThere has been a steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters, notwithstanding the June bipartisan agreement to suspend the debt limit until January 2025. The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management,\u201d the rating firm said.<\/p>\n

\n

Political jockeying over the debt ceiling has become the focus of international attention, and not in a good way. The U.S. may have the world\u2019s deepest and widest capital markets, but Congressional consensus on fiscal policy looks increasingly chaotic.<\/p>\n

The White House said it disagreed with the downgrade. Treasury Secretary Janet Yellen said the move was based on outdated data that ignored the resiliency of the economy. <\/p>\n

Indeed, economic growth has kept up at a roaring pace despite the highest interest rates in a generation. Gross-domestic product clocked in at an expectation-defying 2.4% annual rate in the second quarter. Inflation is declining faster than expected too, with the latest round of consumer price index data showing prices rising 3% year over year in June. And when the jobs report is released on Friday, it is expected to show unemployment remains near a half-century low at 3.6%, and that jobs growth is healthy while moderate enough to temper inflation concerns. <\/p>\n

These aren\u2019t the symptoms of a country due for a credit downgrade. Still, the strength of a country\u2019s economy isn\u2019t the only factor to consider in its credit rating.<\/p>\n

\u201cIt\u2019s true that this move by Fitch is somewhat based on outdated data, especially with the trajectory of inflation now in at a more favorable gradient,\u201d said Sophie Lund-Yates, an analyst at broker Hargreaves Lansdown. <\/p>\n

Nonetheless, the move still hit markets. The
\n Dow Jones Industrial Average,<\/span><\/p>\n

S&P 500,<\/span>
\n and
\n Nasdaq Composite
\n were all in the red in Wednesday trading. The
\n 10-year Treasury yield
\n rose 0.029 percentage point to 4.077%, its highest yield since November. <\/p>\n

While stocks have lurched lower today, the damage doesn\u2019t look terrible. Yes, a credit rating downgrade is serious, but the U.S. has gone through this once before. And the economy is in a better position now than it was the last time this happened. Plus, this won\u2019t stop global investors from buying U.S. Treasuries. The dollar remains the world\u2019s reserve currency and hit a 20-year high last year.<\/p>\n

S&P, one of the three major credit rating firms, downgraded U.S. debt on Aug. 5, 2011, after another major debt ceiling battle. On Aug. 8\u2014the first trading day after the S&P downgrade\u2014the S&P 500 lost almost 7% in what became known as Black Monday. The benchmark index would lose 5.7% that month, and another 7.2% in September. <\/p>\n

At the time, Wall Street was limping out of the 2008-09 financial crisis and unemployment remained high. Not only did that year see a bitter debt ceiling battle, but also developments in the heady days of Europe\u2019s debt crisis.<\/p>\n

\u201cObviously S&P being the first to downgrade 12 years ago was far bigger news and has allowed investors to adjust for the most important bond market in the world not being a pure AAA anymore but it\u2019s still a big decision [from Fitch],\u201d said Jim Reid, a strategist at Deutsche Bank.<\/p>\n

Investors shouldn\u2019t forget the lessons of 2011, but they also shouldn\u2019t forget a simple fact: It has been a great year for stocks. The S&P 500 is up some 18% this year. Even one of Wall Street\u2019s biggest pessimists, Morgan Stanley\u2019s chief U.S. equity strategist, is starting to change his tune. <\/p>\n

Write to Jack Denton at jack.denton@barrons.com<\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Fitch lowered the credit rating of the U.S. from AAA to AA+. The downgrade should do little to derail confidence in the country, even if it is hitting markets, and appears to have more to do with Washington than economics. At the fore of Fitch\u2019s rationale is what it calls an erosion of governance. \u201cThere […]<\/p>\n","protected":false},"author":1,"featured_media":4150,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-43759","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"\nThe S&P 500 Fell 7% After the Last U.S. Credit Downgrade. What Happens Next. | iFintechWorld<\/title>\n<meta name=\"description\" content=\"Fitch lowered the credit rating of the U.S. from AAA to AA+. 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