US stocks (^DJI, ^GSPC, ^IXIC) fall as the "sell America" trade reignites after Moody's joined Fitch and S&P in cutting the US government's long-term credit rating. Madison Mills breaks down the US credit rating scale on Morning Brief.
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It's time now for our chart of the day. I'm taking a look at the credit rating scale amid that key downgrade by of the US by Moody's here. So you've got three major credit agencies, and just like you at home might have a credit score, well, the United States also has a sort of credit score through its credit rating scale that each of the three agencies give it. Now, previously, we already had S&P and Fitch downgrading the US to their second best uh descriptor here, which is when you have very high credit quality, very low credit risk. Previously, they had the US at the highest credit quality level with minimum credit risk. Essentially what that means is the US was the best possible investment according to those credit agencies previously. And now Moody's was the final hold out, keeping the US at that highest credit quality, minimum credit risk level. They recently downgraded the US uh on Friday here. Now the key question is what are the differences here, and what does it mean for you and your investments? Well, previously when we saw these downgrades from S&P and Fitch, there were sort of different reasons, right? The uh one that was coming in in around 2011, I believe, uh was related to the US soaring through its debt limit. And then you had Fitch coming out with their downgrade in 2023, which was also just a concern about the ballooning deficit. My sources this morning in notes to me saying that the Moody's downgrade is very similar to the Fitch downgrade. It's just about concerns to the deficit. Moody's noting in particular that Trump's tax plans could increase the debt to GDP ratio to 9% by 2035. That could cost up to $4 trillion, and they're worried about that ballooning deficit problem, hence that downgrade. Now, what's important for you to know as a investor here is that historically we don't really see these downgrades leading to a lot of pressure in the stock market. What we do potentially see is them leading to pressure in the bond market. We're seeing a little bit of a sell-off today. That leads to a rise in yields. Then that makes bonds start to look a little bit more attractive, so maybe that takes a little bit of wind out of the sales of the stock market as investors look to the bond market. That, of course, is going to be the key question going forward. Do investors continue to find safety in the US bond market amid a little bit of that sell the US exceptionalism fade, the US exceptionalism rally because of this downgrade here?