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Article Index

Wrong, Again: S&P Upgrades U.S. Outlook

By , Global Investing Specialist, Money Morning -

Any time the big ratings agencies give the "All Clear," grab your wallet. Their record of closing the gate after the horses have left the barn is better than their record of getting things right ahead of time.

Now Standard and Poor's has upgraded the U.S. economy. That surely signals trouble -- and it's there for anyone to see. If they want to look.

There are also a few key opportunities for investors willing to ignore the herd...

Why the Market Yawned at the S&P's U.S. Credit Rating Outlook Upgrade

By , Money Morning -

When Standard & Poor's upgraded the outlook for U.S. credit rating from negative to stable on Monday, Wall Street hardly seemed to notice.

The mild market reaction was a stark contrast to the sharp downturn back in August 2011, when the Congressional standoff over the raising the federal debt ceiling prompted S&P cut the U.S. credit rating to AA+ from the top-tier AAA.

But while the improved outlook is welcome, a return of the U.S. credit rating to AAA status isn't expected any time soon.

"Generally these things don't happen in just a few years," said Nikola Swann, S&P's sovereign ratings director.

S&P listed the fiscal cliff deal and stronger-than-expected private-sector contributions to economic growth, combined with increased remittances to the government by the government-sponsored enterprises Fannie Mae and Freddie Mac, as reasons for the upgrade to the U.S. credit rating outlook.

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Is a U.S. Credit Rating Downgrade a Sure Thing?

By , Contributing Writer, Money Morning -

Fitch Ratings Inc. cautioned today (Wednesday) that it may downgrade the U.S. credit rating - currently AAA, the highest ranking - if Congress doesn't reach a fiscal cliff deal.

The ratings agency said if negotiations on both the fiscal cliff and the debt ceiling extend into 2013, Fitch will review the credit rating which may lead "to a negative rating action."

"Failure to avoid the fiscal cliff...would exacerbate rather than diminish the uncertainty over fiscal policy, and tip the U.S. into an avoidable and unnecessary recession," Fitch wrote in its 2013 global outlook. "That could erode medium-term growth potential and financial stability. In such a scenario, there would be an increased likelihood that the U.S. would lose its AAA status."

Fitch's warning is not merely a threat, and it isn't the only rating downgrade facing the United States.

Moody's Corp. (NYSE: MCO), which also currently has a AAA rating in place and maintains a negative outlook, advised in September that it was prepared to strip the country of its stellar rating if lawmakers don't come up with a long-term debt reduction plan.

Standard & Poor's has been even less lenient.

It trimmed its U.S. credit rating one notch in 2011 to AA+, alluding to the political stalemates that thwarted an agreement on raising the debt ceiling. The downgrade, a first in U.S. history, was harshly criticized, and stunned Washington.

S&P lectured earlier this year that an additional downgrade was likely sans a debt deal.

Joining S&P in stripping the U.S. of its desirable credit rating was Egan Jones, a much smaller but still well-known rival among the big three credit rating agencies. This September, it slashed its rating to AA- from AA.

A U.S. credit rating downgrade is just one important consideration in the debt ceiling debate.

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U.S. Credit Rating Agencies Hold "Negative" Outlook for United States after Debt Deal

By , Associate Editor, Money Morning -

Although two U.S. credit rating agencies have affirmed the country's top-tier AAA credit rating, both are maintaining a "negative" outlook on U.S. federal debt - making it clear this week's congressional debt-ceiling deal failed to bring about the deep-government-spending cuts the market was looking for.

After Congress on Tuesday approved a debt deal that would raise the country's debt limit by as much as $2.4 trillion, Moody's Investors Service (NYSE: MCO) and Fitch Ratings Inc. confirmed the United States' top-tier AAA credit rating - but gave it a "negative" outlook.

A "negative" outlook means the rating could be downgraded in the next year or two.

But the debt-ceiling saga isn't over: Standard & Poor's - which has taken the hardest line, stating there's a 50% chance it would slash the U.S. credit rating - has yet to deliver its decision.

All three of the rating firms - S&P, Moody's and Fitch - had warned that a downgrade was possible. S&P said it would downgrade the credit rating by one level if Congress didn't slash spending by at least $4 trillion over 10 years.

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