Without some agreement, investors are focused on the weakest European countries.
“The concern continues to be about what to do about Italy and Greece,” says Sam Stovall, chief equity strategist for S&P Capital IQ in New York. “But, France is also a concern – if France is downgraded it would be a blow because it would in essence weaken one of the two pillars of Europe holding up the rest of it.”
However, some investors are already anticipating France’s credit will be dropped from AAA to AA by the rating agencies.
“It’s not a question of if but a question of when S&P downgrades France,” says Anthony Valeri, market strategist for LPL Financial in Los Angeles. “In all reality back in August there was more cause to downgrade France than the US because its debt to GDP [ratio] is worse than [that of] the US.”
Concern over the twin debt problems in the US and Europe is so strong that investors are even ignoring some signs the US economy is improving somewhat. On Monday, the National Association of Realtors reported existing home sales in October were up 1.4 percent – better than expected by Wall Street economists. However, home prices fell 4.7 percent year over year.