Thursday’s mass downgrades by Moody’s sent European stocks down slightly at the market’s open Friday morning. But despite the lowered ratings, investors appear relatively unfazed, as banking stocks both in Europe and the United States began regaining lost ground as the day proceeded.
The rebound reflects the market’s long-standing anticipation of the downgrade, which has been in the works since February. Further, investors and the banks themselves take issue with the basis of Moody’s decision. Will Hedden is a sales trader at IG Index:
“We’ve already seen RBS [Royal Bank of Scotland] coming out and saying well they don’t agree with this, this is backward-looking and not forward-looking and we’re in a much better position than we were in the past.”
The chief reason for the downgrades is overexposure to the ongoing eurozone crisis, which grants at least a modicum of accuracy to Moody’s actions. As even if the downgrades were worked into the market long ago, the troubles with Greece and Spain are undoubtedly a point of failure for banks.
Add to that the slowdown in China, and investors and banking institutions have a hard road ahead, downgrades or not.