Financial FitnessGeneral Information

Can There Be Growth Despite a Lowered Debt Rating?

By November 7, 2019 No Comments

It was approximately eight years ago, on August 5th, 2011, when I was in Chicago’s O’Hare Airport when it was announced, that the Standard & Poor’s had downgraded the US government debt, from its highest rating of AAA to its second highest rating of AA+. This was a result of congress agreeing to raise the debt ceiling.

What happened after the downgraded rating?

During that first full trading day the S&P 500 Stock Index, according to BPN Research, fell 6.6%, as a result of the S&P downgrade.

Today, the yield on the 10-year Treasury has actually fallen during that eight-year period from 2.57 all the way down to 1.65% and during that same time period, the Standard & Poor’s 500 has gained 189%, which is the equivalent of 14.2% per year.

What does this mean?

In other words, just because a country’s debt has been downgraded, doesn’t necessarily mean the country as a whole won’t grow.

 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.  All performance referenced is historical and is no guarantee of future results.  All indices are unmanaged and may not be invested into directly. 

The Standard and Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.