Is black Monday coming? What are you going to do with your stocks Monday 8/8/11?
I feel anyone seriously in the stock market casino either knew this was coming for months or knew that regardless of the rating that the US was in trouble. With that said, I don't know :)
No. The worst is over; at least for now.
If all three major credit rating agencies had particpated in the downgrade, or even if Moodys had followed suit, we would almost certainly be facing another crisis. But given that it was only S&P, and given thay they made a $2 trillion math error, I don't see this being a big problem at the moment.
The real problems have been Italy, and the tea party, not US debt.
The tea party? You mean you don't believe Fox blaming Obama who would have routinely raised the debt ceiling if he could have?
First warning to keep on topic
S&P was specific about this. The failure to automatically [as has always been done] raise the debt ceiling was one of the main reasons for the downgrade. That we would even threaten to default, [let alone by choice!] was enough to shake confidence.
S&P isn't even worried about our short-term debt. In spite of the nonsense from the right, now is not the time for draconian cuts in spending. We need to allow more time for economic recovery to take hold. But we also need to damp the trajectory of our debt over the next ten years. That is what S&P wants to see.
They also want to see the Bush tax cuts expire.
Selling out of what you own now would be the worst idea possible! (in my humble opinion) If you have the ability to buy more of what you already own - and if you purchased what you have under some sort of appropriate asset allocation model - then buy more. But.... i hate to see people get the gambling fever and start making decisions when things get really good or really bad.
It's been proven that the average person who sticks to their initial asset allocation strategy in a retirement plan typically outperforms someone who changes strategies frequently.
I'm not happy about the downgrade, but i think it's a good thing since it's bringing a real valuation to our economy.
You don't think U.S. debt is a problem? We're running six wars on credit, we have a $14T debt, and $60T+ in unfunded liabilities for social programs. How is this going to end well?
Apparently the markets have expected a downgrade. There was a partial recovery on Friday. I would expect some bargain hunters on Monday, and perhaps some trading programs will kick in. If one is considering buying stock, then look over the last 5 years or so, look at the earnings per share (and ROI) and the dividends. Dividends > 3% look good compared to treasuries and savings accounts at the moment.
Also, look the Asian markets tonight as they open on Monday morning there, and then look at the EU markets before the opening of the US markets.
Expect some volatility in the near term.
I would tend to agree with QuantumCandy. While everyone's financial situation and goals are different, holding now and even buying more would be a wise idea.
If you don't need to cash out in the near future (10 years or so, IMO) that's probably good advice.
Agreed, history performance shows that every 10 year block, almost without exception, the market goes up. The last 70 years or so, after every bear market, the following bull market goes longer and returns everything that was lost and more, sometimes many times more.
Imagine if one had bought GE stock at $7.00 per share during the week of March 2, 2009.
The US credit rating probably should be AA- with China and Japan.
That would reflect the current lack of fiscal discipline and debt.
Double-up in 2 years? I'd like that.
If you haven't taken any action already, there is no sense taking any now, because everything that is already known about the situation is already built into the price the market will open on Monday.
On the other hand, if you had the foresight to move your life savings from USD into Swss Francs a year ago, you would have doubled your money in a year, even before last weeks diversions. And that's without using any financial instruments more complicated than keeping some Swiss banknotes under your mattress.
But IMO many US residents seem to struggle the idea that anything other than a US dollar is really "money" at all
Also, consider the current dividend - and look a Warren Buffet's warrants.
Yep. 3.6% is a pretty nice yield. I wish I could get half of that on my savings.
First, whether there will be a market correction (in either direction) assumes that the downgrade was not correctly priced in to begin with. I can't believe that this was a surprise to anyone - there were explicit warnings, after all.
That said, classical economic theory says stock prices should move up in response to a debt downgrade, not down.
Eh? The theory being that money would flow out of debt into equities? Even so, I can imagine some counter arguments to equity prices going up.
Right. The short answer is that as the risk of one investment increases, other investments become more attractive. A longer answer is that to compensate for the increased risk, rates have to go up, which means prices go down, and bond and stock prices are inversely correlated.
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