US stocks traded lower on Wednesday after markets were rattled by a lowering of the US government’s credit rating by Fitch Ratings and as bond yields yields rose when the Treasury boosted the size of its debt sales, though data from ADP showed that the labour market is still quite strong, MarketWatch reported.
US stocks fell on Wednesday with a broad risk off tone across markets after rating agency Fitch late Tuesday lowered the US credit rating citing “expected fiscal deterioration” and an “erosion of governance”.
Fitch’s move followed a similar move by S&P Global in 2011 after a previous fight in Congress over raising the debt ceiling.
The US Treasury market acts as a global benchmark upon which many financial products are based and so uncertainty about its stability can cause anxiety for investors, MarketWatch reported.
The news found a stock market arguably vulnerable to unwelcome surprises, with the S&P 500 index having already gained over 18 per cent this year and the tech-heavy Nasdaq Composite up 35 per cent. The CBOE VIX Index, an option-based gauge of expected S&P 500 volatility, jumped 10 per cent to 15.4.
Traditional perceived havens saw demand, with gold nudging up to $1,981 an ounce, and benchmark German government bond yields moving lower.
“Markets will take some time to digest the news,” said Frank Lietke, Executive Director and President at Ally Invest Securities, MarketWatch reported.
However, he said he doesn’t expect the lowering to cause the stock market much long-term damage. “We’ve seen this before,” Lietke said. “This alone won’t be enough to put significant downward pressure on stocks.”
