Episode 670: The DC Today - Wednesday, August 2, 2023

Today's Post - https://bahnsen.co/3DGpZpC

Fitch (the least known of the three major credit rating agencies) downgraded the U.S. from AAA to AA+, citing growing fiscal deterioration and overall debt burden. Now, you might be thinking, “oh no this sounds really bad,” and certainly anyone who doesn’t think the debt burden in the U.S. is really bad has, shall we say, not let the medication wear off … But on the other hand, not referring to the debt itself – just referring to Fitch saying all this, you also might be thinking, “ummmm, did you guys just return to the office yesterday?” All headlines and Johnny-come-latelies aside, treasury yields laughed off this announcement today. We should note, S&P moved the rating to AA+ twelve years ago.

If one were looking to understand financial market responses to U.S. sovereign debt reality, they would be more focused on the ramifications for liquidity in the financial system (Fed actions with easing and tightening and levels of reserves in the banking system) than the ability to repay debt. The latter is simply not a concern. The former is a volatile, uncertain, and unstable tale that ebbs and flows and impacts all sorts of risk assets.

The ADP jobs number once again blew out, this time at 324k private sector jobs created in July (versus 190k expected). We shall see what BLS says on Friday.

More than 40% of companies in the Russell 2000 (small cap index) have NEGATIVE earnings. Small cap benefits from active management.

Links mentioned in this episode: TheDCToday.com DividendCafe.com TheBahnsenGroup.com