Fitch Downgrades U.S. Government Debt: What this Means for Your Investments
Fitch, one of the 3 major credit ratings firms, downgraded the U.S. government's credit rating on Tuesday.
The downgrade, the first by a major ratings firm in more than a decade, siting “In Fitch’s view, there has been a steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters, notwithstanding the June bipartisan agreement to suspend the debt limit until January 2025”. Another conclusion reached by Fitch," The expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance relative to 'AA' and 'AAA' rated peers"
Fitch’s rating on the U.S. now stands at “AA+”, or one notch below the top “AAA” grade.
U.S. government debt was downgraded last in 2011, by Standard & Poors, from AAA to AA+ , where their rating currently stands.
What this Means for Your Investments
This rating downgrade, like 2011, is a warning from an Independent Rating firm, that the U.S. needs to get its fiscal house in order. Balancing tax revenue, with spending, and limiting government money creation, effects inflation, and economic growth.
I expect rates to be higher, for longer, until the Fed gets its desired 2% inflation target.
The inverted yield curve, along with a number of other economic indicators, continues to signal a slow down in the economy.
Fixed Income
Continue to take advantage of higher rates, with a conservative laddered approach. Longer term treasuries should do well later in the cycle, as the economy slows, throughout 2024.
Stocks
Deploy a risk managed approach, add selectively to core positions, as they become reasonably priced.
Beginning January of 2022, we took our market risk exposure from net long 75%, to 69%, continuing to reduce exposure as the evidence unfolded, to where our practice was net long 45% by June.
January of 2023, the technicals improved, and our models were positioned net 52% long, to take advantage of the 20% YTD performance of the market.
Cash
Heavier cash positions, take advantage of higher yields, and be in position to add to your longer term holdings at better prices.
There are many investment alternatives for your money, bank CDs, Real Estate, Stocks, Bonds, Fixed Annuities, Income Annuities, Private Company Stock and Credit. The key is to make sure its a good fit, based on your financial plan, and to do thorough research, to know what you own.
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John Stanton is the founder of The Stanton Group WP. With more than three decades of experience in the financial services industry, he serves as an advisor for clients, focusing on financial planning and the investment strategies to support their financial plan. Based in Naperville, Illinois, John serves clients in Naperville, Plainfield, Darien, Aurora, Geneva, St Charles, and throughout the United States. Learn more about John's services by visiting https://www.stantongwp.com/team-member-01 or connecting with him on LinkedIn https://www.linkedin.com/in/john-stanton/ .
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