Italian and Spanish bond yields are trading at their lowest levels in weeks as the ECB has intervened. US treasuries, which were downgraded by S&P, are bucking the downgrade and trading higher on the day. From a fundamental standpoint this is the best outcome one could have hoped for. The risk of contagion is now at a far lower level than it was last week.
So why are equity markets trading sharply lower? A lot of fear was stirred up this weekend and many scared retail investors are likely to hit the panic button (and professional investors who act like retail investors). I believe that this provides an excellent opportunity for level headed investors. The market is at all sorts of extremes that typically leads to a rally and the risk of contagion is largely gone.
Historically, the best time to buy has been when the stock market makes the front page of the mainstream newspapers and that is precisely what is happening. Everybody says they want to buy when there is blood in the streets but instead they wring their hands about a meaningless S&P downgrade.