U.S. Credit Rating Downgrade: 5 Years Later

| About: SPDR S&P (SPY)

It’s a common practice on Wall Street for companies to release bad news on a Friday afternoon, often in the Summer or ahead of a holiday weekend, in the inane belief that maybe no one will notice. Five years ago today (8/5/11), Standard & Poor's may have taken a page out of the old Wall Street handbook when it announced late on a Friday evening that it had lowered the AAA sovereign rating of the United States. While the move was widely expected, it was still a shock and sent shivers through the investment community for the rest of that August and September. While the short-term implications of S&P’s downgrade sent stocks sharply lower and bonds surprisingly higher, the long run picture has been much different than most would have probably expected when they contemplated the move over that August weekend.

The chart below shows the total return of the S&P 500 and long-term US treasuries over the last five years starting from the close on 8/5/11. While the S&P 500 initially declined 8% on a total return basis, the index has more than doubled since 8/5/11 with a gain of 101%. That’s an annualized return of 15%! Treasuries initially rallied on the news of the downgrade as investors flooded into safe assets and were up over 10% within six weeks of the rating downgrade, but since then the pace of gains has stalled. In total, long-term treasuries have returned 50% since the downgrade. That works out to an annualized return of roughly 8.5%. Not too bad either, but half that of equities.

While stocks have done well over the last five years, sector performance has varied widely. While every sector is up during this period, the performance spread between the best and worst performing sectors is nearly 150 percentage points! On the upside, Health Care, fueled by biotechs, has put up a total return of 159.2%. Behind Health Care, Consumer Discretionary (141.1%), Technology (113.5%), Consumer Staples (107.6%), and Industrials (105.1%) have all outperformed the S&P 500. On the downside, Energy has been the worst performing sector over the last five years with a total return of just 11.4%. Besides Energy, the only other sector that has significantly underperformed the S&P 500 is Materials (+58.6%).

On an individual stock basis, the tables below list the best and worst performing current S&P 500 stocks since 8/5/11. First the winners. With a gain of over 804%, Regeneron (NASDAQ:REGN) has been the top performing stock in the index, rising from $46 up to $423. While a stock from the Health Care sector tops the list, only three of the biggest winners are from that sector even though it has been the best performing sector overall. The sectors with the most representation on the list are Consumer Discretionary and Industrials, with six each.

On the downside, it shouldn’t come as much of a surprise that a lot of stocks from the Energy sector made the list. As shown, more than half of the 20 names listed below are from the Energy sector. Leading the way lower, shares of Chesapeake (NYSE:CHK) have lost over 80% of their value. Likewise, it has been a horrible five years for Transocean (NYSE:RIG) as well, as that stock is down over 80%. Outside of the Energy sector, some of the standout names on the list of losers include First Solar (NASDAQ:FSLR), which you could consider an Energy company, NetApp (NASDAQ:NTAP), and Staples (NASDAQ:SPLS).