{"id":7270,"date":"2023-08-07T12:13:43","date_gmt":"2023-08-07T18:13:43","guid":{"rendered":"https:\/\/www.keystonefinancial.com\/?post_type=oi_article&p=7270"},"modified":"2023-08-08T09:27:06","modified_gmt":"2023-08-08T15:27:06","slug":"market-commentary-august-7-2023","status":"publish","type":"oi_article","link":"https:\/\/www.keystonefinancial.com\/articles\/market-commentary-august-7-2023","title":{"rendered":"Market Commentary | August 7, 2023"},"content":{"rendered":"\n
An unwelcome surprise.<\/p>\n\n\n\n
Last week, Fitch Ratings startled markets by lowering the credit rating of United States Treasuries from AAA to AA+. It was the second rating agency to downgrade U.S. Treasuries; Standard & Poor\u2019s cut its rating to AA+ in 2011, reported Benjamin Purvis and Simon Kennedy of Bloomberg.<\/p>\n\n\n\n
The decision to lower the rating was not a comment on the strength of the U.S. economy, which expanded faster than expected in the second quarter on the strength of business investment in equipment, particularly transportation equipment, reported Erik Lundh of The Conference Board.<\/p>\n\n\n\n
While many were baffled by the decision, as well as its timing, Fitch had warned it was considering a rating downgrade in May when lawmakers were haggling over the debt ceiling while the possibility of default loomed, reported of Bloomberg.<\/p>\n\n\n\n
Last week, Fitch Senior Director Richard Francis told Davide Barbuscia of Reuters, \u201cFitch downgraded the U.S. credit rating due to fiscal concerns, a deterioration in U.S governance, as well as political polarization reflected partly by the Jan. 6 insurrection.\u201d<\/p>\n\n\n\n
There are now 10 countries with government bonds that are rated AAA by at least two rating agencies: Germany, Denmark, Netherlands, Sweden, Norway, Switzerland, Luxembourg, Singapore, Australia, and Canada, reported Tania Chen of Bloomberg.<\/p>\n\n\n\n
Markets did not take the downgrade well. Stocks sold off and Treasury rates rose mid-week. Jacob Sonenshine of Barron\u2019s reported:<\/p>\n\n\n\n
\u201cOf course, the [stock] market always needs a reason to fall, and this past week it found one in surging Treasury yields. It\u2019s hard to tell exactly what made them pop. Though some blamed Fitch\u2019s downgrade of the U.S. credit rating to AA+ from AAA, it\u2019s more likely a combination of massive issuance\u2014the Treasury said it plans to issue more debt than had been expected\u2014and solid economic data that forced market participants to reconsider their growth targets. Higher yields make stocks worth less, all else being equal.\u201d<\/p>\n\n\n\n
Markets briefly reversed course later in the week when the U.S. employment report showed jobs growth easing. Overall, employment data supported the idea that a recession may be avoided. The number of new jobs created remained above the pre-pandemic monthly average, and average hourly earnings were up 4.4 percent year-over-year, according to Barron\u2019s Megan Leonhardt.<\/p>\n\n\n\n
At the end of the week, major U.S. stock indices were lower, reported Barron\u2019s. Yields on longer U.S. Treasuries rose more than yields on most shorter Treasuries, steepening the yield curve.<\/p>\n\n\n\n