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As we approach the close today, one might have assumed a much bigger response to Moody’s downgrade of U.S. debt. We saw the S&P 500 notch a lukewarm 0.13% decline. Historically, though, the response to such downgrades has been much bigger the day of the downgrade and the coming weeks and months after.
On August 5, 2011, for instance, Standard and Poor’s downgraded U.S. debt. The market’s response was immediate with a 6.59% decline the next day.
The next downgrade from Fitch came on August 1, 2023 and the big index declined 1.55% the next day, 5.27% over the next week, and a full 10.33% over the next three months.
In comparison, today’s 0.13% decline is downright muted. So we’ve got to ask “why?”
Is it possible that the market has become so accustomed to debt and deficits that we’re now immune?
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