Washington outraged, stocks sink on US credit rating’s historic downgrade

Following a historic downgrade of the US credit rating by Fitch Ratings, which lowered the US debt rating from the highest AAA rating to AA+, stocks have declined.

The rating was lowered after lawmakers risked the country’s first default by negotiating a debt ceiling agreement earlier this year. According to Fitch, the uprising on January 6 was another significant contributing element to the downgrading.

Since US Treasuries are widely regarded as the safest asset, the downgrading is not anticipated to have a negative impact on the standing of Treasuries as safe assets. Treasuries enjoy a sterling reputation because no other nation has a currency market that is as thriving.

Other safe investments like gold, which is renowned for its price stability even during times of market instability, are available but may look pale in contrast to Treasuries. The market is too hazardous to support a financial system in the same way as the US Treasury market since the US dollar, the most important reserve currency in the world, is denominated in Treasuries. The data speaks for itself, and some analysts support the downgrade in light of the fact that 113% of America’s economic output is taken up by debt as being clearly alarming.

The White House, Treasury Department, and some of the top economists denounced Fitch’s downgrading within minutes of it taking place. The downgrading, according to Treasury Secretary Janet Yellen, was “arbitrary and based on outdated data,” she said, highlighting improvements in several of the metrics Fitch uses.

Former Obama economic adviser Jason Furman called the downgrade “completely absurd,” and economist Larry Summers described it as “bizarre and inept,” noting the move comes just as the US economy looks stronger than anticipated. In response, Francis said Fitch based the decision on much broader forces than the trajectory of the economy over the next few months.

The Dow fell by nearly 230 points, or 0.6%, in midday trading as investor sentiment continued to be weighed down by Fitch’s downgrade of US long-term debt.

The S&P 500 was down by 1.3% and the Nasdaq composite dropped 2.4%. The 10-Year Treasury yield reached its highest level since November, at around 4.1%. Tech stocks led the downward spiral as titans like Amazon, Microsoft, Tesla, Nvidia and Meta were all trading more than 2% lower.

The end of a robust earnings season is also underway. CVS gained 3.8% after beating estimates and Kraft Heinz grew by more than 1.4% even after reporting that higher prices were limiting consumer demand.

Chinese stocks, meanwhile, dropped after officials in Beijing proposed limits on smartphone use for minors. Shares of JD.com, Alibaba and Baidu were all down about 5% on the news.