Market Analysis: Fitch Downgrades US Credit Rating

Fitch has downgraded the US sovereign credit rating by one level from AAA (held since 1994) to AA+ — having warned about this 2 months ago. However, the news came as a surprise.

The reason for the downgrade is the high and growing debt burden. This manifests itself in repeated debt ceiling cancellations and last-minute decisions. The last example is the events this spring.

Fitch analysts expect that:

• the state budget deficit will rise to 6.3% of GDP in 2023 from 3.7% in 2022;
• tightening credit conditions, weakening business investment and slowing consumption will push the US economy into a moderate recession in Q4 2023 and Q1 2024.

By the way, the last time the US rating was lowered was in 2011, also in August. Standard & Poor’s then downgraded the US credit rating from the maximum “AAA” to “AA +”. This caused the stock market to fall.

We wrote in our review on July 31 that the stock market is in a vulnerable position for a correction. As expected, the downgrade helped push the S&P 500 off the highs of the year, dropping below the psychological 4500 level.

Support levels can slow down the fall of the S&P 500 index:

• around 4,450 is the former resistance level;
• median line of the ascending channel.