Personal Wealth Management / Expert Commentary

Fisher Investments’ Ken Fisher, Reviews What the US Credit Rating Downgrade Means for Stocks

Fisher Investments’ founder, Executive Chairman and Co-Chief Investment Officer Ken Fisher reviews the implications of Fitch’s US bond credit rating downgrade in early August. According to Ken, the downgrade was insignificant and markets had already pre-priced the factors that led to the downgrade. Ken says credit ratings changes are typically based on backward-looking information and, therefore, lack predictive power. For this reason, Ken argues the rating downgrade is unlikely to have any meaningful impact on the stock market and will soon be forgotten.

Transcript

Ken Fisher:

By the time you see this video, this video will probably be pointless. I don't know why you're wasting your time watching it. I wouldn't watch it if I were you. The fact of the matter is. In early August, all kind of people got all kind of upset about the US bond credit rating being reduced. Now, I'm just going to tell you that has almost nothing to do with anything of any significance and very soon will be forgotten. Credit rating agencies like Fitch and Moody's and Standard and Poor's almost always are laggard effects, not leading effects. Things go a certain way. Then they change their rating, which confirms what previously happened.

There's I mean, we have a long history of credit rating agencies raising and lowering credit ratings on all kinds of securities. And I'm going to tell you said simply that the one, two, three, five year future price action of things they raise ratings on or lower ratings on has pretty much no correlation in price to the rating changes. Why? Because it's almost always backward looking. So what that means is that while a lot of people get excited about it for cultural reasons, thinking about things wrongly—as people in groups do so often in capital markets—it really doesn't have any predictive power. It really doesn't have any oomph. It really doesn't have a meaning. And I would not be shocked at all if by the time this video is finished being produced, put online and you see it, if all that chitter chatter isn't completely forgotten about it, and if it isn't completely forgotten about it, you know what I would do if I were you? I'd forget about it. Because you know what? It's totally meaningless. Thank you for listening to me.

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Investing in securities involves a risk of loss. Past performance is never a guarantee of future returns. Investing in foreign stock markets involves additional risks, such as the risk of currency fluctuations. The foregoing constitutes the general views of Fisher Investments and should not be regarded as personalized investment advice. Nothing herein is intended to be a recommendation. The opinions expressed are subject to change without notice.

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