Life’s a Fitch! The real reason the market sold off!

First, let me be honest. This is not the topic I wanted to cover today, but our Simplify Wall Street members deserve clarity in the market. Various news, data, and red candle sticks have formed over the last few days. Let’s dive in.

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Major News

• Fitch Ratings downgraded its US debt rating on Tuesday from the highest AAA rating to AA+

When a credit rating agency downgrades a country's debt rating, they have a less positive view of the country's ability to pay back its debts. This downgrade indicates more risk or uncertainty about the country's financial stability and ability to repay what it owes. Going from a high rating to a lower one shows that the country's creditworthiness has decreased.

How does this affect the economy?

1. Interest Rates: If the country's credit rating goes down, it could mean that interest rates on its debt will go up. This is because investors will want more return on their investment to make up for the higher risk. When interest rates are higher, it becomes more expensive for businesses and individuals to borrow money. This could result in less spending and investment.

2. Investor Confidence: A credit rating downgrade can make investors lose confidence in the country's financial markets and economy. This may cause investors to be more cautious about investing in the country, leading to a decrease in foreign direct investment and portfolio investments.

3. Stock Market Volatility: Today, the market had a continuation day 2 sell-off, dropping nearly 2 %. Volatility will increase with the more uncertainty the government presents to the American people.

4. Currency Impact: If a currency like the US dollar loses its reserve currency status, it may decrease in value compared to other currencies. This can affect the prices of imported goods and cause inflation, which could impact consumers and businesses.

5. Consumer and Business Confidence: A downgrade can also lower consumer and business confidence, causing less spending and investment, further hurting economic growth.

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It's important to note that credit rating agencies actions are just one of many factors that can influence financial markets and the economy. Government policies, economic indicators, geopolitical events, and global economic conditions also significantly shape the overall economic outlook.

When a downgrade like this occurs, it prompts reactions from policymakers and financial institutions, as they may address the concerns raised by the rating agency and work towards stabilizing the economy and restoring investor confidence.

In the very short term, this led to downside pressure, I think we can all agree that eventually, we will see more volatility, but with $AAPL earnings around the corner, I know that the market either crashes on $AAPL earnings or is saved by the apple. Can we trade lower into 4xxx? Yes, do I think we will? Subscribe to premium and find out in the morning in the premium chat.

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