Come Monday, investors with a shorter time horizon may need to brace for some pain and even cut losses following the Standard & Poor's downgrade of US debt. But those with a longer time horizon can likely stand pat.
The big picture for long-term investors shows a looming debt catastrophe in Europe, a sharp slowdown in US economic activityand a stock market susceptible to shocks of any kind. So times are calling for a close look at your asset allocation, your risk tolerance, and the balance in your portfolio, experts urge.
But as for the headline-grabbing S&P downgrade, the effects on investments over the long haul should be minimal and even provide a buying opportunity ultimately.
"There's an underlying assumption that somehow S&P is the guardian of the entire credit market. In fact, it isn't," says Quincy Krosby, market strategist at Prudential Financial in Newark, N.J. "The ultimate arbiter is the market itself. Yes, there are going to be repercussions. But the fact is we will move on, perhaps on a positive note."
After all, it was no secret that S&P was preparing to cut the AAA credit rating for the US, nor was it even much of a secret that from a balance sheet perspective the US really didn't deserve the top rating.
The nation is beset by a $14.3 trillion—and growing—public debt and a $1.5 trillion—and growing—budget deficit.
"Did anyone ever believe the US was triple-A for the last number of years? Did investors believe that our deficit was going to shrink magically? No," Krosby says. "But when all is said and done whenever there is trouble globally, whether macro or political, the US Treasury market is the safe haven and it will continue to be the safe haven."
As for investments that aren't safe haven, the picture could be different as the economy grinds to a halt.
Bread-and-butter strategies of diversification and rebalancing likely will take focus again as the turbo-charged market and economy fed by trillions in stimulus change.
Goldman Sachs economist Jan Hatzius released an analysis Friday night slashing the firm's projections for gross domestic product growth down to 2 percent to 2.5 percent through 2012. He expects unemployment to stay right around the current 9.1 percent level, with a nudge higher to 9.25 percent likely by the end of next year, with the economy now facing a 1 in 3 chance of recession.
As such, there is fear that the debt markets could freeze up—independent of proclamations from ratings agencies—presenting real fear of recession rather than cosmetic fear from ratings agencies that failed the country during the financial calamity in 2008.
"This is about debt, and debt moves the world," says Kevin Ferry, president of Cronus Futures Management in Chicago. Ferry worries that large Wall Street firms are not active enough participants in the debt markets because of economic fears largely from Europe.
"There is going to be debt and they should be gearing up," he says. "They should be bolstering their fixed-income departments. They're folding up and laying people off and it's a really dangerous sign."
As a bond trader, Ferry says he is holding short positions now that he likely will unwind once Treasury starts selling debt again, which is just around the corner.
"Never have the central banks done so much chaos in the name of stability," he says. "Stability's not a policy. Just do what you need to do and the markets will take care of it."
In this environment strategists increasingly are prescribing more mundane investment strategies after two years of riding Federal Reserve liquidity programs to big gains.
"With debt crisis concerns or slowing global growth, diversification works and you want to have that in your portfolio," says Liz Ann Sonders, chief market strategist at Charles Schwab in San Francisco. "Swings in markets are happening more quickly and dramatically. Having a real careful eye on periodic rebalancing is going to serve you well."
Sonders advocates investors look at their portfolios for areas that have gotten out of balance and adjusting exposure higher or lower.
Gold would be one example—for those who have been in the metal during its meteoric run now might be a good time to look on cutting back as it takes on a higher percentage of balance in the portfolio, she says.
One significant danger to the market in the near term is behavior of the US dollar.
Its weakness has been seen as pivotal to driving the rally that began with the March 2009 crisis lows—the US has been able to sell its products more cheaply in the global marketplace—but that could be changing if concerns escalate over US debt.
"Before we were actually extremely bearish on the dollar. Actually we think this (downgrade) is going to be good for the dollar. The dollar will rise and all other assets will fall," says Lee Markowitz, partner at Continental Capital Advisors in New York. "Own US dollars in cash, not Treasurys. Just sit in cash and wait and I think you'll have a buying opportunity in every single asset class."