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What markets would do in the event of another downgrade: Goldman
January 31, 2013, 6:13 AM
Earlier this week, Fitch largely called off the alarm over the chances of a downgrade to U.S. debt. But in a note Thursday, Goldman Sachs warned investors to not get too comfortable, as a downgrade is still a remote possibility.
Goldman is sticking to its belief the U.S. debt ceiling will be lifted again this year. Even if it then becomes a binding constraint, a priority will be put on debt servicing, making a default remote.
However, the Goldman worrywarts say, ratings agencies do not want to see politicians get to brinkmanship, possibly in the form of a protracted debt-ceiling standoff ahead of the deadline. They kindly remind us that that’s exactly what happened back in August 2011, when S&P made history by cutting its triple-A rating on the U.S. even though the debt ceiling was ultimately extended in a last-minute deal.
As for what a downgrade would do to markets, which was basically the point of the Goldman note, they say any impact would be muted. Whew.
Oh, but wait. There’s another however.
“That said, should a full implementation of the sequester or a government shutdown cause a more significant hit to growth and/or expectations, the underpinnings of the S&P rebound would be challenged and the nascent equity rally and coincident bond market sell-off could well reverse,” says Goldman. (Read the latest on the ‘sequester’)
RBC Capital Markets predicted recently that it’s only a matter of time before the U.S. loses its triple-A rating from another agency. The next downgrade, they say, will have an even bigger impact on markets than the last time.
If you don’t remember what happened to markets the Monday after that S&P rate cut, which came after markets closed that Friday, let us refresh your memory, compliments of Market Snapshot, Aug. 8, 2011.
On that day, the Dow industrials DJIA -0.32% fell 634.76 points, or 5.6%, the worst daily loss since Dec. 2008. The S&P SPX -0.39% fell 6.7%. |
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发表于 2013-1-31 07:22
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