Breaking news hit the wire just moments after market close last Friday of the credit rating agency Moody’s downgrading the U.S. credit rating from AAA to AA1. Moody’s was the final credit rating agency to uphold the AAA rating, but a concern over the U.S. deficit forced their hand. The market reaction that followed was obviously negative, with the S&P 500 giving up its entire gain from Friday in the post-market hours, leaving many to wonder whether the downslide will continue into this week.
The last downgrade came on August 1, 2023, which sent markets lower and kicked off a three month market correction, but that doesn’t necessarily mean the same will happen this time. There are always a combination of factors that move markets, at that time it was The Fed’s high interest rates that really drove markets lower. This time, we have other concerns such as tariffs, but interest rates are lower and a market correction just took place last month. What could be a concern is the timing of this release, which was at the highest market level seen since February. With the recent market rally being nearly V-shaped, a bad catalyst like this can disrupt the recovery for a period, especially in overextended stocks. These names may begin to correct in the coming weeks while other names begin to gain, this is a healthy market capital rotation and is necessary to sustain a bullish market. The initial phases of capital rotation aren’t very apparent, but signs begin to emerge over the weeks of which names are seeing more buyers, we’ll be watching for these signals to take on trade opportunities.
Apart from the credit rating impacts, investors are coming into a report-light week. Not many economic events are scheduled this week, making for a technical based trading environment. Investors and traders should note that there are multiple Fed speakers scheduled this week, with members expected to speak every day. Markets may react to comments from The Fed throughout the week. You can see these morning updates by being part of the Hyper Stocks Pro community. Learn more here.
SPY Technical Analysis:
Everyone loves a market rally, but one that goes on for weeks with no pullback relief is simply unsustainable. If SPY opens lower this week due to the credit rating downgrade, it could be an opportunity for the index to cool down a bit, this way it can build a new base at higher levels. The closest base it can build on is around the 567.00-577.00 range, which SPY needs to sustain to avoid a move back towards 530.00. If SPY does continue pushing this week, buyers are looking for a breakout above 596.55 for continuation towards all time highs. Wanna join us for daily updates and set-ups? Click here.