Last Friday, Moody's became the last of the major rating agencies to downgrade America's sovereign credit rating, cutting it by one notch. The downgrade was driven by the nation's mounting $36 trillion debt burden. This marks the third major downgrade for US sovereign debt, following similar moves by Fitch in 2023 and Standard & Poor's in 2011. The rating cut has amplified investor concerns about a looming debt crisis and may ultimately increase borrowing costs for both the US government and private sector.
The rating downgrade may trigger forced selling by funds that are mandated to invest only in highly-rated securities under their own charter rules. Notably, a similar sell-off occurred following S&P's credit rating downgrade in 2011. Moody's stated that successive administrations have failed to reverse the trend of growing budget deficits and interest payments, and expressed skepticism that the proposed fiscal measures would lead to substantial deficit reduction.
The US government reached its statutory borrowing limit in January and began using 'extraordinary measures' to prevent it from reaching the cap. Bessent has indicated that by August, the government could reach the so-called X date, when it will run out of money to meet all of its obligations.
Investor anxiety over the debt ceiling has intensified markedly, creating downward pressure on stock indices, including the S&P 500.
Looking at the S&P 500 chart, one can clearly identify the 5,800 technical support level below current price action. The index appears likely to correct toward this support zone in the near term.
The overall recommendation is to sell SPX.
Profits should be taken at the level of 5800. A Stop loss could be set at the level of 6000. The volume of the opened position should be set in such a way that the value of a possible loss, fixed with the help of a protective Stop loss order, is no more than 1% of your deposit funds.
This content is for informational purposes only and is not intended to be investing advice.
