Stock markets slump as rating agency Fitch downgrades U.S. from AAA debt status

Wall Street fell on Wednesday after a move by rating agency Fitch to downgrade the U.S. government’s credit rating hit an appetite for risky assets around the world.

Fitch downgraded the United States to AA+ from AAA, citing fiscal deterioration over the next three years, as well as growing government debt — the second major agency to cut the country’s rating after Standard & Poor’s stripped it of its triple-A grade in 2011.

Several major brokerages, however, said the downgrade was unlikely to result in a sustained drag on U.S. financial markets, noting that the economy was stronger than in 2011.

Fitch’s downgrade has provided investors with a reason to book profits, said Sam Stovall, chief investment strategist at CFRA Research in New York.

“We have seen the markets advanced quite nicely in July, and now the downgrade dampens near-term investor sentiment.”

Strong jobs report

Meanwhile, the ADP National Employment report showed private payrolls increased by 324,000 jobs last month, far more than expected, pointing to continued labour market resilience that could shield the economy from a recession.

Edward Moya, a senior market analyst with New York-based foreign exchange firm Oanda, said that good news about jobs and corporate earnings wasn’t enough to offset the “one-two punch” of the debt downgrade.

“The U.S. credit rating downgrade should not have been a surprise for investors that have been following Fitch’s comments, but the timing surely caught everyone off guard,” he said.

Rate-sensitive megacap stocks — including Tesla, Nvidia, Meta Platforms and Apple — tumbled, as yield on U.S. 10-year Treasury notes rose to its highest in nearly nine months at 4.1 per cent.

At midday, the Dow Jones Industrial Average was down 233.56 points, or 0.66 per cent, at 35,397.12; the S&P 500 was down 53.75 points, or 1.17 per cent, at 4,522.98; and the technology-focused Nasdaq Composite was down 285.06 points, or two per cent, at 13,998.86.

Shares that lost value outnumbered those that gained by a 5.34-to-1 ratio on the NYSE and a 3.31-to-1 ratio on the Nasdaq.