Deja Vu: After Fitch's Cut To US Credit Rating, A Look At The Market Fallout From S&P's 2011 Downgrade
Portfolio Pulse from Piero Cingari
Fitch Ratings has downgraded the US sovereign credit rating from AAA to AA+, reminiscent of a similar event by S&P in 2011. The 2011 downgrade led to a significant market fallout, with the S&P 500, Dow Jones Industrial Average, and Nasdaq 100 indices all experiencing sharp declines. However, these indices rebounded in October 2011. The VIX index, a measure of market volatility, rose significantly. Despite the downgrade, US Treasuries rallied due to a flight to safety. The US Dollar index was marginally higher in August 2011, but rallied 6% in September. Gold, as tracked by the SPDR Gold ETF Trust, rallied 3.2% on Aug. 8, 2011, to 12% for the month, but erased all its gains in September.
August 04, 2023 | 11:44 am
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NEGATIVE IMPACT
The SPDR Dow Jones Industrial Average ETF (DIA) could also see a short-term decline following the credit rating downgrade, similar to the 5.6% drop on the first day of trading after the 2011 downgrade.
Historical data from the 2011 downgrade shows a significant drop in the Dow Jones Industrial Average, which DIA tracks. This could potentially repeat.
CONFIDENCE 85
IMPORTANCE 80
RELEVANCE 100
NEGATIVE IMPACT
The Invesco QQQ Trust (QQQ) could experience a short-term decline following the credit rating downgrade, similar to the 6.2% drop on the first day of trading after the 2011 downgrade.
Historical data from the 2011 downgrade shows a significant drop in the Nasdaq 100 index, which QQQ tracks. This could potentially repeat.
CONFIDENCE 85
IMPORTANCE 80
RELEVANCE 100
NEGATIVE IMPACT
The SPDR S&P 500 ETF Trust (SPY) could experience a short-term decline following the credit rating downgrade, similar to the 6.7% drop on the first day of trading after the 2011 downgrade.
Historical data from the 2011 downgrade shows a significant drop in the S&P 500 index, which SPY tracks. This could potentially repeat.
CONFIDENCE 85
IMPORTANCE 80
RELEVANCE 100
POSITIVE IMPACT
The SPDR Gold ETF Trust (GLD) could rally following the credit rating downgrade, similar to the 3.2% rise on Aug. 8, 2011, but the rally could be short-lived.
Historical data from the 2011 downgrade shows a rally in gold, which GLD tracks, but the gains were erased in September. This could potentially repeat.
CONFIDENCE 80
IMPORTANCE 70
RELEVANCE 100
POSITIVE IMPACT
The Invesco DB USD Index Bullish Fund ETF (UUP) could see a marginal increase following the credit rating downgrade, similar to the 0.3% rise in August 2011.
Historical data from the 2011 downgrade shows a marginal increase in the US Dollar index, which UUP tracks. This could potentially repeat.
CONFIDENCE 75
IMPORTANCE 60
RELEVANCE 100