In this report S&P Capital IQ examines how credit events can impact on the price of equities. The results are compelling. The report looks at the relationship between credit indicators and equity back-tested returns.
S&P Capital IQ’s research reveals equity investors could pay attention to certain key fixed income signals. As during times of stress, trouble can often be seen in the top line of companies first. Their research found that rating analyst downgrades often preceded trouble in the equity price of companies in the next month. The research focused on three geographies – US, Europe and Asia – and the results were consistent across all three regions.
The report considers:
• Which market leads: fixed income or equity?
• Long-terms rating changes are impactful in three scenarios
• The impact of a 50 basis points CDS spread on performance