An analyst from Fitch Ratings has issued a cautionary statement, suggesting that a potential downgrade of U.S. banks, including major players like JPMorgan Chase, might be on the horizon. This comes in the wake of Fitch’s recent adjustment to the U.S. banking industry’s “operating environment” score from AA to AA- in June. The downgrade was attributed to multiple factors, including credit rating pressures, regulatory framework gaps, and uncertainty surrounding the trajectory of interest rate hikes.
Fitch had underlined the shifting interest rate landscape, noting a departure from the prolonged decline observed since the 1980s. The reversal to higher rates is expected to exert prolonged pressure on deposit levels and funding costs, a factor that could shape the banking landscape for an extended period.
Should another downgrade occur, dropping from AA- to A, Fitch would be compelled to reevaluate the ratings of over 70 U.S. banks within its purview, as indicated by analyst Chris Wolfe in a CNBC interview.
This warning follows closely after Moody’s, a peer of Fitch Ratings, downgraded 10 mid-sized U.S. banks, and hinted at possible rating cuts for several others. The news of potential downgrades had an immediate impact, with shares of major banks like JPMorgan Chase, Citigroup, and Bank of America experiencing nearly a 2% decline.
The financial market also witnessed an initial dip as a result of disappointing economic data from China, which offset the positive news of better-than-expected U.S. retail sales. While American retail sales grew by 0.7% to reach $696.4 billion in the previous month, underlining the continued support from a robust labor market, China’s retail spending and industrial production growth displayed signs of slowing down.
Amidst these developments, the Dow Jones Industrial Average retreated by 0.7% to 35,074.70, the S&P 500 registered a 0.6% decline to 4,461.16, and the Nasdaq Composite Index shed 0.5% to reach 13,715.73. These fluctuations underscore the intricate interplay of global economic forces impacting the financial markets.
