Double Dip Fears Grow Stronger
While the extensive influence of credit rating agencies continues to be called into question, with analysts pointing out that credit ratings should be viewed as an informed opinion rather than a judgment, there is no doubt that investors in general look to credit ratings for guidance – especially in uncertain markets where some have suffered losses through unprecedented market volatility. Although Standard & Poor’s was the only major credit rating agency to downgrade the US from AAA to AA+, investors are fearful that other AAA rated nations are in the firing line for downgrading. Speculation that France, Europe’s second largest economy after Germany, would be the next to meet this fate, saw shares of French bank Societe Generale fall by 15 percent on the Paris Stock Exchange on Wednesday, with Germany’s Deutsche Bank falling 12 percent, and Spain’s Banco Santander losing 9.5 percent.
Standard & Poor’s has received harsh criticism for downgrading the credit rating of the United States, and appears to have lost a measure of credibility in some investment circles. Moreover, double-dip recession fears are resurfacing, while Wall Street does battle once again with volatile markets. On Wednesday, the New York Stock Exchange invoked Rule 48 ahead of the opening bell, thereby giving the exchange the right to pause trading should markets experience extreme volatility. As the index of Wall Street’s fear factor, the volatility index (VIX) climbed by close to 22 percent to a level of 43. Analysts note that anything above 30 is considered to be worrisome, however, the current reading is still lower than the nearly 90 recorded by VIX following the Lehman Brothers collapse in October 2008.