The Downgrade: What You Need To Know

posted 8/8/2011 in General

Market Commentary Highlights...
  • We view the U.S. rating downgrade from AAA to AA+ as a disappointing, but lagging indicator of the pressures already reflected in the markets. We find plenty of historical evidence that markets have priced in the events that led to the downgrade much earlier than when the downgrades took place.
  • While there are some negative consequences, there are not triggers stemming from the downgrade that would spark a chain of events leading to a financial crisis.
  • Could this mark a "Sputnik moment" for policy makers tasked with finding the additional savings stipulated in the debt ceiling legislation?
The initial beneficiaries of the downgrade include precious metals and Treasuries given the hit to investor sentiment and the desire to seek safety and liquidity. Stocks, led by Financials, may initially suffer. However, low valuations and efforts to address the debt problems in Europe combined with improving economic data may put a halt to the stock market's decline.
 
View the entire economic Commentary (pdf format)
 
Lincoln Savings Bank and LSB Financial are pleased to provide the above Economic Commentary for the week of August 8, 2011. The commentary is prepared by LPL FINANCIAL RESEARCH, the broker-dealer partner for Lincoln Savings Bank and LSB Financial. The above commentary and others like it can be found at www.mylsb.com/investments/commentary.aspx
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