Wall Street experienced a decline as Fitch downgraded the United States’ credit rating. This marked the second consecutive day of losses for the S&P 500 and Nasdaq Composite, as investors opted to take profits following five months of gains. Fitch’s decision to lower the country’s rating from AAA to AA+ was based on expectations of fiscal deterioration and increasing government debt over the next three years. In 2011, Standard & Poor’s had also downgraded the US credit rating.
The news of the downgrade had a negative impact on major indexes, with the S&P 500 marking its largest daily percentage drop since April 25. However, some major brokerages suggested that the downgrade would not have a prolonged negative effect on the US financial markets. They noted that the economy is currently in a stronger position compared to the 2011 downgrade by S&P.
While July saw the S&P 500 and Nasdaq Composite achieve gains for the fifth month in a row, the Fitch downgrade provided an opportunity for investors to take a breather. Quincy Krosby, the chief global strategist for LPL Financial, stated that it was healthy for the market to undergo this period of digestion, as it allows for a decrease in valuations and offers an opportunity for dip-buying.
Megacap stocks that are sensitive to interest rates, including Tesla, Nvidia, Meta Platforms, and Apple, experienced a decline as the yield on US 10-year Treasury notes reached its highest level in nearly nine months. Investors fear that high interest rates could hinder economic growth and impact the profit growth that tech stocks typically enjoy. The technology index was the worst performer among the 11 major S&P sectors, dropping by 2.6%.
Looking ahead, investors are expected to shift their focus to big tech company earnings, particularly Amazon.com Inc and Apple, as well as the payroll report to be released on Friday. The market is likely to move past the Fitch downgrade and concentrate on these upcoming events.
The Dow Jones Industrial Average fell by 348.16 points, or 0.98%, closing at 35,282.52. The S&P 500 lost 63.34 points, or 1.38%, ending the day at 4,513.39. The Nasdaq Composite dropped 310.47 points, or 2.17%, to 13,973.45.
Despite concerns of a potential recession, corporate America has continued to perform well. With approximately two-thirds of the S&P 500 already having reported their earnings, 79.9% of companies have exceeded analysts’ expectations. This puts the current quarter on track to have the highest earnings beat rate since the third quarter of 2021.
CVS Health Corp saw a gain of 3.3% after surpassing Wall Street’s quarterly profit estimates, while Emerson, an industrial software firm, raised its annual profit outlook, leading to a 3.8% climb in its stock price. On the other hand, Advanced Micro Devices faced a decline of 7% due to concerns that its targets for artificial intelligence ramp-up might be overly ambitious, overshadowing the company’s optimistic forecast for the rest of the year.
The overall volume on US exchanges reached 11.88 billion shares, surpassing the 10.79 billion average for the last 20 trading days.
In terms of new highs and lows, the S&P 500 recorded 12 new 52-week highs and five new lows, while the Nasdaq Composite achieved 49 new highs and 111 new lows.
As the market absorbs the impact of the credit downgrade, attention is likely to shift towards upcoming earnings reports and economic indicators. Despite the recent decline, investors will look for opportunities and evaluate the health and performance of different sectors and companies.
