With today's market gapping lower after Friday's US bond downgrade, the model has switched to a sell.
US bonds have been downgraded by major agencies three times. The first two times US bonds were downgraded, the S&P 500 immediately dropped substantially the next day and in the following days. The first time, however, US Treasuries paradoxically rallied as investors still saw them as the world’s safest asset. The second time, the 10-year Treasury yield climbed to around 4.49% in the immediate aftermath of the downgrade. This increase in yield reflected investor concerns that the downgrade signaled greater fiscal risks, potentially requiring higher returns to compensate for perceived increased risk in holding US government debt.
So far, the 2025 Moody’s downgrade from Aaa to Aa1 has pushed S&P 500 futures lower by 1.15% at the time of this writing while the yield on the 30-year is hitting new highs as a consequence of the downgrade.
Will the market selloff this time be more mild? Global liquidity is pronounced compared to prior times, tariff resolutions are looking more positive, and the economy and jobs data remain resilient. But record levels of debt, debt interest, and tariff uncertainty remain. Odds seem to favor a selloff first, ask questions later when it comes to stocks. Bitcoin, however, held its ground on Aug 1, 2023. It was only a few weeks later that fears of a rate hike caused all markets to fall so one might attempt to hold onto bitcoin-related vehicles such as MSTR, GBTC, and DEFT, among others unless they hit your sell stops.
Over the weekend after the downgrade, bitcoin actually attempted to rally.
List of Potential ETFs for investors:
1-times inverse
PSQ - NASDAQ 100 1x bear.
2-times inverse
QID - NASDAQ 100 2x bear.
3-times inverse
SQQQ - NASDAQ 100 3x bear.
NOTE: This is a suggested list. Investors may wish to become acquainted with the full range of available ETFs, and should make an effort to understand how these ETFs are created and what their components are, as well as being aware of the downside risks involved, especially with leveraged ETFs. Certain ETFs may be more appropriate depending on one's risk tolerance levels. Typing in keyword 'ETF' into the FAQ keyword search bar or going here https://www.virtueofselfishinvesting.com/faqs/search?p=1&q=etf and visiting this site https://etfdb.com/ can be instructive.