Thursday, August 11, 2011

Stock Market Reactions to Past Downgrades

To help us evaluate and understand the implications of current events we find it helpful to look at past market behavior.  With Standard & Poor’s downgrade of the U.S. debt rating from AAA to AA+ we were interested in learning how other markets fared after a downgrade to their credit worthiness. 

Interestingly, there have been 11 downgrades of sovereign country debt ratings over the past 25 years.  In 8 of those 11 cases, the stock markets of the affected countries were higher 12 months after the downgrade occurred, and the average stock market increase was 17%.

Source:  BlackRock, Inc.