On Wednesday, the stock market experienced a decline following Fitch Ratings’ decision to lower its U.S. debt ratings from AAA to AA+. This downgrade was due to the country’s increasing debt burden and a perceived erosion of governance over the past two decades.
Stock Decline and Impacts
The S&P 500 (SPX) dropped by approximately 63 points, or 1.4%, closing near 4,513. This marked the largest daily percentage decline since April 25, according to preliminary data from Dow Jones Market Data. Additionally, the Dow Jones Industrial Average (DJIA) decreased by about 1%, while the Nasdaq Composite Index (COMP) closed 2.2% lower.
It is worth noting that stocks had already been slowing down in their pursuit of record levels before Fitch’s downgrade. However, the announcement further dampened investor sentiment.
Impact on Treasury Yields
Following the news, longer-dated Treasury yields saw an increase. The 10-year Treasury rate (TMUBMUSD10Y) rose to approximately 4.07%, as reported by FactSet.
Investors often gravitate towards Treasurys and other safe-haven assets in times of economic uncertainty. Thus, this rise in Treasury yields reflects a potential flight to safety, as concerns about the U.S. economic outlook become more prominent.
In conclusion, Fitch Ratings’ decision to downgrade the U.S. debt ratings sparked a market reaction with stock prices declining across major indices. Simultaneously, Treasury yields experienced an upward trajectory as investors sought refuge in safer assets amidst increasing economic uncertainties.