WEEKLY MARKET UPDATE

Entering the week, the second quarter earnings season, inflation indications, and jobs data were top of mind for investors, but credit ratings agency, Fitch, threw markets a curve ball Tuesday night when it downgraded US debt from AAA, its highest possible rating, to AA+.  Back in May, Fitch had placed the US on a ratings watch citing the debt ceiling fight, but investors were still very surprised by the first US credit rating downgrade since Standard & Poor’s re-evaluation in August 2011.  In their downgrade Fitch flagged "expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance relative to 'AA' and 'AAA' rated peers".  These are all valid points, but nothing unknown by markets and while Wednesday saw the S&P 500 fall over -1% for the first time since May, the market response has been fairly muted compared to what occurred in August 2011.  Nonetheless, the S&P 500 fell about -2% on the week while interest rates surged to levels not seen since November 2022.

Ultimately, we view Fitch’s downgrade as mostly symbolic and believe the path of inflation and the economy will continue to lead markets.  However, interest rates have meaningfully risen over the last few weeks and certainly this is a headwind for the S&P 500 that is about 7% below all-time closing highs.  Earnings season is now 85% complete, so next week will be highlighted by the consumer price index (CPI) and producer price index (PPI) for July.

Ian G. Browning, CFA
Managing Director, Investment Strategies | Shareholder

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