NEW YORK: Wall Street fell on Wednesday after rating agency Fitch’s move to downgrade the US government’s credit rating hit 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 in 2011 stripped it of its triple-A grade.
Several major brokerages, however, said the downgrade was unlikely to result in a sustained drag on US financial markets, noting that the economy was stronger than in 2011.
Fitch downgrade has provided investors a reason to book profits, said Sam Stovall, chief investment strategist at CFRA Research.
“We have seen the markets advanced quite nicely in July and now the downgrade dampens near-term investor sentiment.” The benchmark S&P 500 and the tech-heavy Nasdaq took a breather in the previous session as investors entered a seasonally slow August after ending July strong on the back of better-than-expected earnings and hopes of a soft landing for the US economy.
Meanwhile, the ADP National Employment report showed private payrolls increased more than expected in July, pointing to continued labor market resilience that could shield the economy from a recession.
Rate-sensitive megacap, megacap stocks including Tesla, Nvidia, Meta Platforms and Apple , tumbled, as yield on US 10-year Treasury notes rose to its highest in nearly nine months at 4.1%.
At 11:30 a.m. ET, the Dow Jones Industrial Average was down 233.56 points, or 0.66%, at 35,397.12, the S&P 500 was down 53.75 points, or 1.17%, at 4,522.98, and the Nasdaq Composite was down 285.06 points, or 2.00%, at 13,998.86.
On the earnings front, CVS Health Corp added 3.1% on beating Wall Street estimates for quarterly profit, boosted by strength in its pharmacy benefit management unit and lower-than-expected medical costs in its health insurance business.
Emerson climbed 4.2% after the industrial software firm raised its annual profit outlook as companies increase spending on automation in response to a tight labor market.
Second-quarter earnings are now expected to fall 5.4% from a year earlier, as per Refinitiv data on Wednesday, compared with a 7.9% decline estimated a week earlier.
Wells Fargo said it expects to pay as much as $1.8 billion to help replenish a government deposit insurance fund that was drained of $16 billion this year after three banks collapsed, sending its shares 2.0% lower.
Advanced Micro Devices shed 6.5%, after opening higher on forecasting an upbeat finish to the year and on plans to launch AI chips that could compete with market leader Nvidia.
Declining issues outnumbered advancers by a 5.34-to-1 ratio on the NYSE and a 3.31-to-1 ratio on the Nasdaq.
The S&P index recorded 10 new 52-week highs and four new lows, while the Nasdaq recorded 34 new highs and 88 new lows.