The Sagging Stock Market

The lead article in today’s New York Times, “Stocks Resume Free Fall on Fear over Economic and Credit Woes,” shows just how far the uncertainty unleashed by Standard & Poor’s downgrade of U.S. Treasury securities is spreading. The ratings downgrade, from AAA to AA+, combined with uncertainty over major countries in the Euro zone, including Italy and Spain, is causing investors to panic and move their money out of stock markets all over the world. The Dow continued its free fall, dropping by another 600 points.

Ironically, all the volatility is causing investors to seek safe havens, and they are largely fleeing to U.S. Treasuries, the very investment Standard & Poor’s decided to downgrade. In fact, S&P also continued to issue more downgrades on Monday, specifically to Fannie Mae and Freddie Mac, the mortgage companies backed by the U.S. government. Meanwhile, the political gridlock in Washington cited by Standard & Poor’s for its decision shows no signs of abating.

On the other hand, U.S. corporate balance sheets are widely described as fortress-like by market analysts, and many consider this wave of selling to be an opportunity to pick up some real bargains. Whether this profit-taking occurs today and halts the stock market’s slide remains to be seen.