The big news today is S&P’s downgrade of US credit outlook to negative. This is clearly weighing on the market and one of the few times you are seeing a rise in yields even though the stock market is weak.
My thoughts are that this should not really have been a big surprise as the long run fiscal problems are pretty obvious. I don’t know to what extent will this actually have an impact on the funding of US debt, there may be many institutions which just mechanically follow credit rating agencies.
The real tell will come from yields, if yields don’t rise much that will be a good indication that this is not very significant. In fact even today the rise in yields is pretty modest. So my conclusion so far is that the market was already pretty weak and this turned out to be a good catalyst to continue the sell off. Todays close will be the tell, if we close below 1300 in the S&P, I think that would be a very good tell that we have further to go in this down move and we could very well have started the 7-10% correction that I have been looking for (although a little earlier than I was hoping).