The lower outlook by Moody’s, just months after Fitch's downgrade, reflects the rating agency’s concerns over the United States' long-term fiscal stability, but the impact on bonds should be near zero.
Capital markets have responded positively to better-than-expected economic outcomes so far this year. While the United States has managed to avoid an official recession, growth is almost certain to slow and increases in profits will be challenged. Given this backdrop, we see equities trading sideways to slightly higher in the near term and we continue to favor the U.S. over the rest of the world.
Another regional bank falls, but the markets are seeing the forest from the trees as challenges appear contained.
An unexpected shock in the banking sector has stress-tested the economy and policymakers. Both initially passed. But the impact on lending and credit conditions remains unclear and increases the likelihood of a mistake by the Fed going forward.