Analyst: Not time to sell stocks
Published 12:03 am Tuesday, August 9, 2011
Despite Standard & Poor’s downgrading of the United States’ credit rating, local financial officials said Monday it’s not the time to panic.
“The downgrade wasn’t completely unexpected,” said Bill Green-wald of Edward Jones.
Green-wald said that Standard & Poor’s recent downgrade of the nation’s credit rating from AAA to AA+ was the first time the U.S. had lost its top-notch rating, and the stock market is reacting negatively.
“What folks have to remember is that No.1, the headlines appear to be scary and there will be some short term volatility,” he said. “A downgrade does not mean default. The U.S. will always be able to pay its bills. No. 2, it’s very important to note that S&P didn’t change the short term credit rating, just the long term.”
Greenwald said that short term applies to debt maturing in less than one year.
On Monday, all three U.S. stock indexes were down between 4 percent and 5 percent in early afternoon trading.
The Dow sank 414 points; the S&P 500 lost 56 points; and the Nasdaq dropped 119 points.
On Wall Street, investors were selling first and asking questions later; however, Greenwald said there’s no reason for locals to begin selling their stock.
“For folks who are invested, they will experience some short term volatility,” he said. “It also presents an opportunity for those who are able to take advantage and buy stocks at a lower rate. No one should change their long term investment goals due to short term headlines. People shouldn’t go in and start selling their stock.”
Greenwald said it’s standard that the stock market experiences a 10 percent or more correction once or twice a year for the past 80 years.
“Our last correction happened last year around the same time period,” he said. “And last year the year finished up at 15 percent, and that’s good.”
Greenwald said there are several factors that will contribute to the market’s success.
“The U.S. is still adding jobs,” he said. “People all over the world will buy our bonds above all others because we are still considered the most financially secure nation. In times of concern, other countries still want to buy our treasury.”
Greenwald said that interest rates have the potential to increase, but that’s something he hasn’t seen yet.
“Another thing to note, is that when Japan’s debt was downgraded in 2001, its rates on government bonds didn’t change much at all,” he said. “When Canada was downgraded in 1994, its rates barely changed.”
Greenwald said the U.S. can earn back its AAA rating, though no one knows the exact time frame.
“It took Canada eight years to earn its rating back,” he said. “What will happen is that our Congress will have to reduce spending. Once it does that, the rating agency will see, and it should increase from there.”
S&P has cited its main reason to bring down US to AA+ grade is the government’s failure and inefficiency to reduce the national debt by $4 trillion over the next 10 years. The Congress has passed a bill in the last week only to reduce the national deficit by $2.12 trillion after a two-week long debate and several deadlocks.
Greenwald said it’s important for residents to realize that S&P is one of several credit rating agencies and is the only one that has downgraded the U.S. from AAA.
Of the “Big Three,” Moody’s, issued a AAA rating, and Fitch ratings is expected to issue its rating review by the end of August.