Markets Sell On S&P Negative Outlook
The markets sold sharply this morning on the back of a downgrade by Standard & Poor's. They downgraded the long-term credit in the U.S to negative. The SPDR S&P 500 ETF (NYSE:SPY) is trading at $129.94, -2.10 (-1.59%). This downgrade was inevitable, as the trillions printed by the Federal Reserve continues, however, the markets have been enjoying a period of ignorance is bliss on this matter. Today seems to be somewhat of a reality check.
Off of the downgrade in long-term credit, the Dollar spiked dramatically and oil dropped sharply. The spike in the Dollar goes contrary to what many would think would happen. The Dollar spiked higher as borrowing costs jump. As investors get more and more negative on on the debt of anyone or any country, they require a higher return (interest rate) for the risk they are taking in lending money. As these costs go higher, it will be harder for the U.S. to borrow money. In tune with that, it is feasible to think less will be borrowed. Less Dollars equal a stronger Dollar. The PowerShares DB US Dollar Index Bullish (NYSE:UUP) is trading at $21.68, +0.23 (+1.05%) while the United States Oil Fund LP (NYSE:USO) is trading at $42.75, -0.96 (-2.20%).