{"id":194320,"date":"2023-08-02T09:45:00","date_gmt":"2023-08-02T13:45:00","guid":{"rendered":"https:\/\/ibkrcampus.com\/?p=194320"},"modified":"2023-08-02T11:24:51","modified_gmt":"2023-08-02T15:24:51","slug":"fitch-ratings-downgrade-of-u-s-has-stocks-on-track-for-lower-open","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/macro\/fitch-ratings-downgrade-of-u-s-has-stocks-on-track-for-lower-open\/","title":{"rendered":"Fitch Ratings Downgrade of U.S. Has Stocks On Track For Lower Open"},"content":{"rendered":"\n

Market participants were already contending with the nagging notion that the stock market was overbought on a short-term basis and due for a pullback. It didn’t necessarily need another excuse to continue with a consolidation trade, yet Fitch Ratings provided one after Tuesday’s close when it downgraded its U.S. credit rating to AA+ from AAA.<\/p>\n\n\n\n

Currently, the S&P 500 futures are down 26 points and are trading 0.6% below fair value, the Nasdaq 100 futures are down 122 points and are trading 0.8% below fair value, and the Dow Jones Industrial Average futures are down 147 points and are trading 0.4% below fair value.<\/p>\n\n\n\n

The Fitch Ratings downgrade was attributed among other things to expected fiscal deterioration over the next three years, growing government debt, and erosion of governance related to peers. The timing of the downgrade has been called into question by some pundits and it drew a rebuke from Treasury Secretary Yellen, who said she strongly disagrees with the decision, calling it arbitrary and based on outdated data.<\/p>\n\n\n\n

Judging by the initial reaction of the Treasury market, it would appear that market participants either agreed with Secretary Yellen or reverted to the 2011 approach following the downgrade by Standard and Poor’s where Treasuries, ironically, were viewed as a safe-haven. The thinking being that the U.S. Treasury market is still the biggest, most liquid government bond market in the world and that, as holder of the world’s reserve currency, the U.S. won’t default on its debt.<\/p>\n\n\n\n

The 2-yr note yield, which settled at 4.91% yesterday, and the 10-yr note yield, which settled at 4.05%, traded down to 4.84% and 4.01%, respectively, in overnight action. They have since moved higher to 4.89% and 4.06% for a reason that is easier to comprehend at first blush: the ADP Employment Change Report for July was much stronger than expected.<\/p>\n\n\n\n

According to ADP, private-sector payrolls increased by 324,000 in July (Briefing.com consensus 185,000) following a downwardly revised 455,000 (from 497,000) in June. The reversal in yields hasn’t been more extreme for several reasons:<\/p>\n\n\n\n