The Impact of the Fitch Credit Rating Downgrade

Deterioration in standards of governance eminating from the recent political standoffs and last-minute resolutions on the debt ceiling finally pushed Fitch to downgrade the US fro AAA to AA+. In reality the difference between these two ratings in minimal and basically sends a message to the US.

Of the three major rating agencies only Moodys has kept the US at AAA with both S&P and Fitch having the US credit rating at AA+. In fact, S&P has had the US rated at AA+ since 2012 and in Fitch had the US at AAA rating on negative watch in 2020 and 2021 according to Reuters.

Stocks Tumbled and the Impact in the Long-Term

This caused some turmoil for the stock markets yesterday. In short, it speaks of an eroded confidence in fiscal management thus the fitch ratings downgrade. It was a bit of strange decision considering that it came after the debt ceiling resolution but as was noted Fitch took a long-term view of 20 years to base a decision.

In short, we see this as short-term and from a market point of view it can be viewed as a warning to the FOMO trade. In the long-term we do not see this as relevant since the US is still the place to go. This was seen by US Treasuries rising because of the flight to quality. Also, what are the alternatives? Only small to medium sized economies such as: Luxembourgh, Austria, Australia, Finland, Sweden etc.

Final Analysis on Downgrade o the US

The short term impact should pass in a few days. Main impact is on cooling the FOMO trade. The earnings report of Amazon and Apple today are critical for the market. But more on that in our next post.