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Fitch Downgrades US from AAA to AA+

edited August 2023 in Other Investing
Years ago (2011), the S&P did the same. Only Moody's remains at Aaa.

https://www.cnbc.com/2023/08/01/fitch-downgrades-us-long-term-ratings-to-aa-from-aaa.html

Comments

  • FWIW, DBRS (also an NRSRO) confirmed its AAA rating of United States debt on July 28th.
    https://www.dbrsmorningstar.com/issuers/12866

    All NRSRO ratings of the United States (has not been updated to reflect Fitch downgrade).
    https://tradingeconomics.com/united-states/rating
  • In August, 2011, S&P downgraded US treasury and the stock market tumbled. Will it be differ this time?
    https://npr.org/sections/thetwo-way/2011/08/08/139081051/developing-in-wake-of-s-p-downgrade-watching-the-markets
  • Interesting upcoming budget fight in Sep 2023.
  • edited August 2023
    SPY and IEF (7-10 yr Treasuries) 1 year prior and 1 year after, July, 2011. Keep in mind, many financial markets and economies had still not settled from 2008, especially Europe. One would have made money in many bond areas.
    Global markets Aug 1, 11:30pm EST (active data, click anytime)

    I don't think the big money, at this time, cares about the Fitch move.

    Edit: PERHAPS a nice excuse to take some profits from the hyper performance this YTD in some categories, at least by some of the big players.
  • ”The move by Fitch now gives the US two AA+ ratings. That could raise a problem for funds or index trackers with a AAA-only mandate, opening up the possibility of forced sales for compliance reasons.”

    From Bloomberg’s website this morning.
  • edited August 2023
    Timing for debt downgrade is never ideal. While odd, Fitch had the US on negative outlook and may have deliberately avoided the period around the debt-ceiling fiasco, a mistake that the S&P/McGraw Hill made on 2011.

    Only 2 US nonfinancial companies, JNJ & MSFT, are rated AAA. These aren't related to the US debt rating.

    But in 2011, all US financials were downgraded to AA+ or lower on the theory that no US financial could have debt rating higher than the US. This when only the S&P did the downgrade. IMO, some US financial could easily be AAA, if not for this artificial ceiling.

    There was a temporary hit to stocks in 2011 after the S&P downgrade, but McGraw-Hill suffered more. Basically, it disappeared as a public company, and today, there are public S&P Global/SPGI (in the meantime, it also gobbled up all of the Dow Jones indices) and only private McGraw-Hill Education.

    For years, people said that 2 out of 3 major ratings counted, so the US remained AAA/Aaa even after the S&P downgrade.

    But now, with Fitch (owned by Hearst; also publishes Cosmopolitan, Seventeen, etc) joining S&P, 2 out of 3 becomes AA+.

    Moody's/MCO (with 13.45% owned by Warren Buffett/BRK) remains at Aaa.

    The SEC recognizes 10 NRSROs - Nationally Recognized Statistical Rating Organizations, but so far, the big 3 count. Note that DBRS is now owned by M*; Kroll is the old Duff & Phelps. www.sec.gov/about/divisions-offices/office-credit-ratings/current-nrsros

    Edit/Add. There was a Fido alert last night of an event in my brokerage account. It was on the downgrade of my Treasury holdings. Schwab & Vanguard haven't sent similar alerts yet.
  • That explains the drop in the bond markets yesterday and today. I was puzzling over that since interest rates were finally starting to stabilize.
  • Thanks @yogibb for your perspective. Today all stock and bond indexes are down. We will see how this plays out in light of a number of good economic data. Now the earning reporting is upon us.
  • I'm see RED as of 10 CST.
  • edited August 2023
    Derf said:

    I'm see RED as of 10 CST.

    Don’t look. It won’t hurt as much. But if you must … check out the metals and energy sectors. Probably down twice as much as equities. Did somebody say ”recession”?
  • Think it was premature to say that US may not enter a mild recession, i.e. soft landing. It is a question of when and how severe the recession will be. Many conflicting data right now with the tight labor market, low unemployment rate, falling CPI, slowing service cost and an inverted yield curve. So take you wild guess…
  • edited August 2023
    Sven said:

    Think it was premature to say that US may not enter a mild recession, i.e. soft landing. It is a question of when and how severe the recession will be. Many conflicting data right now with the tight labor market, low unemployment rate, falling CPI, slowing service cost and an inverted yield curve. So take you wild guess…

    Agree. Most younger investors probably don’t really know what a recession is. Have to go back to 2008. ISTM everything’s been going up since March 2009. OK - not the case for China, Russia and EM economies. Scary dip in early 2020 - but I wouldn’t call it a recession. The Fed raced to the rescue, even back-stopping some corporate bonds. Lowered interest rates. Printed money. And under 2 different Administrations “rebate” / “stimulus” checks were mailed out to taxpayers. Furniture stores couldn’t keep up with demand. Ships were backed up in ports waiting to unload. Crazy.

    Yes, nasty market sell off last year. Interest rates rose rapidly. Some sold equities out of fear of recession and moved to cash, etc. But the economy continued to run hot.

    I don’t know if there will be a recession this year or not. But I suspect we’re in for a really nasty one one of these days. ‘23? ‘24? ‘25?

  • A good debate, upcoming recession or not. We are heading into a typical equity market summer slow time, aug through sept. That may be all we are seeing. Then again, who knows.
  • "Then again, who knows."

    @MikeM- I was going to suggest a certain MFO poster, but I'm going to be good and not start any unnecessary trouble.
    :)
  • beebee
    edited August 2023
    Try this yourself.

    Check your credit score.
    Go apply for a bunch of credit (credit cards, student loans, HELOC,etc.)
    Max out all of these cards
    Apply for more Credit
    Max that out
    You discuss your credit related debt with your wife… she says, “raise your debt ceiling”
    You divorced your wife on grounds of insanity
    Your net worth is cut in half
    Your 2.5 kids move back in with you
    Your Ex-wife never moves out because it's too expensive for her to buy or rent
    She starts dating your financial advisor
    He now collects more than 1% for his services
    You lose your job

    You check your credit…oops, you have been downgraded.
    Highlights:

    It’s important to recognize how your financial behaviors may impact your credit scores

    There are several factors that are used to calculate credit scores

    There are many different credit scoring models, or ways of calculating credit scores
    Makes sense to me why US Credit score just dropped!

    https://equifax.com/personal/education/credit/score/how-do-your-actions-affect-your-credit-scores/
  • edited August 2023
    I’m befuddled as to where the markets are heading (I mean more so than usual). Took a bit of risk off the table this week. I don’t think the downgrade in credit rating was a big reason for today’s turbulence. Maybe a good excuse to unload some overextended sectors. Everybody & his brother know the S&P, dominated by big tech, is overbought.

    Under ”woulda, coulda, shoulda”, a consumer staples (food) stock I gave up on / sold 2 weeks ago jumped nicely today. Bad timing - again. Looks like consumers staples in general did well today. I’m amazed how well BRK.B continues to hold up. If you look at the historical charts, it has experienced at least 1 steep drawdown. (Don’t own.) Some magic Buffet / Munger potion I guess. And PRWCX has held up better this week than I would have expected (but off .59% today).

    Intermediate and long term bonds at over 4% worth looking at. Will do well in a recession. But probably losers out very long term. Enjoying everybody’s thoughts.

  • Good news is that Fitch is NOT downgrading all US financials to AA+ (as the S&P did in 2011). So, Fitch is maintaining AAA ratings for "New York Life Insurance Company, Northwestern Mutual Life Insurance Co. and Teachers Insurance and Annuity Association of America".

    https://www.fitchratings.com/research/insurance/insurance-aaa-unaffected-by-us-downgrade-financial-conditions-key-risk-02-08-2023
  • edited August 2023

    Good news is that Fitch is NOT downgrading all US financials to AA+ (as the S&P did in 2011). So, Fitch is maintaining AAA ratings for "New York Life Insurance Company, Northwestern Mutual Life Insurance Co. and Teachers Insurance and Annuity Association of America".

    https://www.fitchratings.com/research/insurance/insurance-aaa-unaffected-by-us-downgrade-financial-conditions-key-risk-02-08-2023

    @Yogibearbull. Thanks. I was wondering today whether some U.S. corporations carry a higher credit rating than the U.S. government. Sounds from your comment that some do. Quite remarkable.

    Fitch did reference political instability in the reasons for the downgrade. Something everyone should keep in mind.

  • edited August 2023
    Thursday’s futures market is up a bit.
    https://finviz.com/futures.ashx

    Think we will enjoy more of the beach than the stock market.

    Addition: Thursday morning, both US and oversea futures market drifted downward.
  • edited August 2023
    This Fitch insights page provides more details. https://www.fitchratings.com/topics/us-debt-ceiling#insights

    US Rating DOWNGRADED to AA+
    US GSEs DOWNGRADED to AA+
    US Farm Credit System DOWNGRADED to AA+

    US Corporations Unaffected (so, JNJ & MSFT are AAA)
    US Financials Unaffected (so, NY Life, Northwestern Mutual, TIAA are AAA)
    US M-Mkt Funds Unaffected

    This is more nuanced that what the S&P did in 2011 - it downgraded all US financials along with the US.
  • DBRS Morningstar confirmed the United States of America’s Long-Term Foreign and Local Currency – Issuer Ratings at AAA.

    In addition, DBRS Morningstar confirmed the United States of America’s Short-Term Foreign and Local Currency – Issuer Ratings at R-1 (high). The trend on all ratings is Stable.
    https://www.morningstar.com/markets/dbrs-morningstar-confirms-united-states-aaa-stable-trend
  • This downgrade might be a good thing if it convinces certain congressmen from threatening to shut down the federal government every time they don’t get their way
  • @bee

    Completely inapt
  • Tarwheel said:

    This downgrade might be a good thing if it convinces certain congressmen from threatening to shut down the federal government every time they don’t get their way

    Doubtful. You can't reason with a cult, remember.
  • Would those be the same congressmen who don't believe in taking reasonable health precautions in the face of a pandemic which killed some 20 million people?

    Would those be the same congressmen who don't believe that we need to do anything at all to slow down climate change?

    Would those be the same congressmen who might possibly benefit greatly from a brain transplant from an ox?

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