SPX500 Weighed by the Fitch Downgrade Ahead of US NFPs & Big Tech Earnings
SPX500 Analysis
Credit rating agency Fitch on Tuesday, downgraded the US long-term foreign-currency issuer default rating (IDR) to 'AA+' from 'AAA', reflecting an "expected fiscal deterioration over the next three years" among other factors [1]. This came after the agency had placed the US in Watch Negative status in May, as the –eventually resolved - debt ceiling drama was in full deploy. [2]
Treasury Secretary Yell strongly disagreed with the decision saying it is "arbitrary and based on outdated data" [3]. Much of the corporate world does not seem to share Fitch's view either. Speaking on CNBC, JP Morgan Chase CEO Jamie Dimon expressed his belief that the downgrade "doesn't really matter that much". He went on to say "its ridiculous" that some countries which "live under the American enterprise military system" are rated higher than the US. [4]
The stock market was caught off-guard and reacted negatively to the news, with SPX500 posting one of its worst days of the year yesterday. However, the above comments are an indication that investors don't agree with the downgrade and are not particularly concerned by it. Back in August 5 2011, the US had lost its AAA by Standard & Poor's (S&P) after the then debt ceiling resolution, which had fallen short of the agency's expectations. SPX500 had fallen then as well, but this ended up essentially being the tail end of the debt ceiling crisis fueled drop.
It remains to be seen if the Fitch decision will have lasting impact on the stock market, but that looks difficult, as there are other more important factors at play. SPX500 is having a great year helped by the AI boom, strong earning by Big Tech - like those of Meta - and anticipation of an end to the Fed's tightening cycle. These themes are front and center this week and will likely determine its trajectory. Apple and Amazon.com release their quarterly results tonight, while the US Jobs reports is due on Friday.
On the tech front, yesterday's slump creates risk for a breach of the EMA200 and daily closes below it could pause the bullish momentum. The RSI points to oversold conditions though and the downside seems well protected, with a thick daily Ichimoku cloud. Significant deterioration in sentiment would be required for sustained weakness. Above the EMA200 bulls are in control and can set new 2023 highs, tackling 4,640, although the record highs may prove elusive in the near term (4,820).
Nikos Tzabouras
Senior Financial Editorial Writer
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.
With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.
References
| Retrieved 03 Aug 2023 https://www.fitchratings.com/research/sovereigns/fitch-downgrades-united-states-long-term-ratings-to-aa-from-aaa-outlook-stable-01-08-2023 | |
| Retrieved 03 Aug 2023 https://www.fitchratings.com/research/sovereigns/fitch-places-united-states-aaa-on-rating-watch-negative-24-05-2023 | |
| Retrieved 03 Aug 2023 https://home.treasury.gov/news/press-releases/jy1665 | |
| Retrieved 18 May 2024 https://www.youtube.com/watch |
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