Will the US Debt Downgrade Crash the Markets?

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On 2 Aug, Fitch Downgraded the US Sovereign Debt from AAA to AA+. What impact will this have on stock markets and Bond markets. How can investors position themselves to profit from this event. Find out in this video.

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36 Comments

  1. it is not about you do not give a damn about the debt of US but the effect is when overall market sentiment drop, all stocks will be affected.

  2. US will not go default as they can print money? That is true but not the right argument here. In that case you'll get your money back in a devaluated currency.

  3. The rating downgrade will affect the stock market in the long term. Many pension and other investment funds have rules that only permit them to hold investments with certain high credit ratings. If the rate is downgraded to AA+, they are forced to sell them. That could lead to higher borrowing costs for US government as investors demand a higher rate of return to offset the higher risk. If the yield is getting higher & higher, stocks will become less and less attractive. If the bonds yield is 5.5%, we are getting $5.50 for every $100 invested. That is about P/E of 18. Stock market average P/E now is 22. Many institution will rather buy more bonds to get guaranteed 5.5% return with almost no risk to the capital rather than risking it in the stock market (especially with looming recession). Also eroding confidence in Treasuries could force the U.S. to pay higher interest rates, which would raise borrowing costs for everything from credit cards to mortgages to cars since US and its consumers would be deemed less trustworthy. If interest rates for everything increase, consumers will have less money to spend. The consumption will decline significantly and many companies' earnings will be severely affected.

  4. You’re actually not a part owner of a stock if that stock is not in your name or DRSed. You are only a beneficial “owner.”

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