Fitch Ratings recently downgraded the United States' long-term foreign-currency issuer default rating from its highest AAA rating to AA+, and stocks fell on the news. But CNBC's Jim Cramer appears unfazed by the decision.
"I'm not concerned about the Fitch downgrade," the "Mad Money" host said.
"I am concerned that too many people remain too sanguine at the moment because that's not what we want to see. When you get too many bulls, it tends to eventually cause a nasty sell-off — so maybe some fear and some loathing are just what's called for."
Take a closer look at what he means.
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Not The First Time
Fitch's downgrade of U.S. debt came on Aug. 1. The credit rating agency pointed to "expected fiscal deterioration over the next three years," a "high and growing general government debt burden" and an "erosion of governance" as reasons behind the decision.
The market didn't like the news. On the trading day following the announcement, the Dow Jones Industrial Average slipped 1%, the S&P 500 dropped 1.4%, and the tech-heavy Nasdaq Composite fell 2.2%.
But it's not the first time for a major agency to cut the country's credit rating. In 2011, Standard & Poor's downgraded the U.S. from AAA to AA+.
Cramer points out that after that downgrade, the market tanked, but the downturn was "totally temporary" as stocks bounced back later on.
"The sovereign debt downgrade was an incredible buying opportunity," he said.
Still, Cramer remains cautious. He sees some froth in the market and urges investors to curb their bullishness and wait.
"I am saying that the action today was so severe and the sell-offs in tech so vicious, that it's worth waiting to see if we can get some sort of bottom that's based purely on fear and loathing out in the future," he added.
Of course, stocks are volatile and even experts like Cramer aren't right 100% of the time. And if you don't like the large swings in stock prices, you might want to look into reliable income plays outside the stock market — such as investing in rental properties with as little as $100 while staying completely hands-off.
Still A Surprise
Cramer said that "the second ratings agency downgrade is never going to hit as hard as the first one." However, the news still came as a surprise to many — including some prominent figures.
For instance, Treasury Secretary Janet Yellen pushed back against the downgrade.
"I strongly disagree with Fitch Ratings' decision," she said in a statement. "The change by Fitch Ratings announced today is arbitrary and based on outdated data."
Yellen highlighted America's rapid economic recovery from the pandemic-induced recession and noted the country's near-historic low unemployment rate as well as the easing of inflation.
"Fitch's decision does not change what Americans, investors and people all around the world already know: that Treasury securities remain the world's preeminent safe and liquid asset and that the American economy is fundamentally strong," she said.
JPMorgan Chase CEO Jamie Dimon also took issue with Fitch's downgrade.
"I would point out to the rating agencies if I could that there are a bunch of countries rated higher than us, like AAA, but they live under the American enterprise military system," he told CNBC. "To have them be AAA, and not the U.S., is kind of ridiculous."
Dimon believes that the downgrade "doesn't really matter that much" because ultimately, it's the market that determines borrowing costs and not the rating agencies.
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