Fitch’s new warning will unlikely tip the scales of investing
2023-08-16
Summary:
If one-notch downgrade from AA- to A+ is implemented, more than 70 banks would be affected including some industrial behemoths. JP Morgan and BOA could be among them.
A Fitch Ratings analyst warned that the U.S. banking industry will likely
face the risk of sweeping rating downgrades.
If one-notch downgrade from AA- to A+ is implemented, more than 70 banks would be affected including some industrial behemoths. JP Morgan and BOA could be among them.
This sort of act has created a ripple effect lately. Moody’s downgraded several small- to middle-sized banks last week and Fitch did that to the US long-term credit rating based on bloated structural fiscal deficit earlier this month.
Fitch already cut the industry’s assessment in June amid fast-increasing interest rates, so the decision of another cut somewhat catch investors by surprise given signs that the Fed will end its aggressive tightening cycle very soon.
Some lenders at the lower bounds of investment grade would take a heavy blow particularly after inching one step closer to non-investment grade.
The impact of a broad downgrades as such remains hard to predict beyond losses of bank bonds and stocks which are expected to squeeze profit margins further.
Traditionally, gold prices tend to rise in response to a financial shock in the US. However, a push higher proved to be fleeting following Fitch downgrade of the US credit rating.
A potential selloff in Dow and the S&P 500 might be used as an opportunity to increase long position as economic data that continues to come in stronger point to manageable systemic risks.
Disclaimer: Investment involves risk. The content of this article is not an investment advice and does not constitute any offer or solicitation to offer or recommendation of any investment product.
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