Market Analysis: Fitch Downgrades US Credit Rating

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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.

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This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.

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