Everyone knew it wasn't going to be pretty. But Monday's sell-off of U.S. equities in the first trading day since credit rating agency Standard and Poor's cut the U.S. government's sovereign debt rating from AAA to AA+ on Friday sent stocks into a free fall and has investors and their financial advisors wondering what -- if anything -- they should do now.
The Dow plunged 634, eroding 5.5% of its total value, in the largest one-day decline since the nadir of economic crisis in December 2008. It was the sixth-largest, one-day correction in history and the sell-off spread to the Nasdaq (down 7%), the S&P 500 (also down 7%) and throughout the world.
Stocks in Japan and Germany shed 4% as a group Monday while equities in South Korea and France shaved off 2% and 4%, respectively. In early Tuesday trading, Japan's Nikkei 225 index fell another 5% while Hong Kong's Hang Seng plunged 7%.
Clearly, the never-ending and confidence-shaking debt ceiling debate and subsequent compromise followed by S&P's landmark downgrade has investors on edge and puts financial advisors in the precarious position of trying to assuage their clients' fears while finding valid reasons and investment options to justify their reassurance.
Beyond the downgrade -- and for now it appears that both Fitch and Moody's will keep America's AAA debt rating intact, at least for now -- the sell-off and preponderance of economic data both here and abroad suggest that any hope of a significant recovery in the U.S. economy is now stalled and the prospect of the dreaded double-dip recession seems all but assured.
"The S&P downgrade of U.S. government debt is the least of our problems," economist Scott Brown at Raymond James & Associates told the Associated Press. "The bigger worry is subpar economic growth and the threat of a new recession."
With this uncertain and precarious backdrop, Financial Planning and its sister SourceMedia publications are working around the clock to keep advisors and investors up to date on the latest and most relevant news and analysis to provide some insight and guidance through this latest economic tumult.
Check out these recent stories for all the background you and your clients need to understand the sweeping ramifications of the debt rating downgrade and what industry leaders are doing in its aftermath: