The United States has long prided itself on its creditworthiness. And usually, it’s worked out well. Granted, it hasn’t always been so great—particularly for creditors—so once in a while, the U.S. sees a cut in its credit rating. That’s just what happened recently, and it’s sent three major ETFs—the SPDR S&P 500 ETF Trust (NYSEARCA:SPY), the Invesco QQQ Trust (NASDAQ:QQQ), and the SPDR Dow Jones Industrial Average ETF Trust (NYSEARCA:DIA)—lower in Wednesday afternoon’s trading.
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Invesco QQQ fared the worst, down almost 2.5% at one point, while SPDR S&P 500 slipped nearly 1.4%. SPDR Dow Jones, meanwhile, slipped fractionally. All three were hit by the same issue: Fitch lowered the United States’ credit rating from AAA to AA+, a step down, but a step with a massive psychological implication.
The Biden Administration, not surprisingly, took the opportunity to blame former President Donald Trump, referring to the cut as a “Trump downgrade.” Meanwhile, Fitch itself cited not Donald Trump but rather “expected fiscal deterioration,” along with a “…high and growing” government debt and what it called an “erosion of governance” around issues of the debt ceiling and related matters. Fitch also noted that the “steady deterioration in standards of governance” goes back 20 years.
As for the ETFs that lost ground today, all three still hold healthy upside potentials and solid analyst ratings. In fact, all three are comparatively close in both metrics: each is considered a Moderate Buy by analysts, and the SPDR Dow Jones offers the lowest upside potential at 9.44% with an average price target of $387.11. By way of comparison, the SPDR S&P 500 offers the best upside potential at 11.93% with an average price target of $503.82.
