4:15pm: Fitch downgrade dominates sentiment
The Dow closed Wednesday down 348 points, 1%, at 35,283, the Nasdaq Composite declined 310 points, 2.2%, to 13,973, and the S&P 500 lost 63 points, 1.4%, to 4,513. The small-cap Russell 2000 index fell 27 points, 1.4%, to 1,967.
The Nasdaq was hit with its worst day since February as investors scrambled after Fitch, the leading credit ratings agency, downgraded the US credit rating from AAA to AA+.
“Investors may use this Fitch downgrade as a reason to take some profits, but we think that was probably a natural part of the market cycle anyway, after such a strong run, very little volatility,” said Mona Mahajan, senior investment strategist at Edward Jones. “Broadly speaking, this hasn’t deterred our fundamental view of the economy or markets.”
12:37pm: Indexes continue to slide
In the early afternoon, the Dow was down 256 points, 0.7%, to 35,374, the Nasdaq Composite slid 348 points, 2.4%, to 13,939 and the S&P 500 declined 61 points, 1.3%, to 4,516.
The benchmarks started in the red and have only fallen as the session has gone on.
“August has a long-standing reputation as a tough month for equities," said Chris Beauchamp, chief market analyst at online trading platform IG. "So far, the reaction to the US debt downgrade appears to be another boost to this old market adage. While there isn’t much new in the downgrade itself, it seems to have been the trigger for some wider selling. With softer data and earnings also hitting sentiment, stocks seem ripe for an August correction.”
10:39am: Stocks extend losses, Carlyle tumbles
US markets have extended losses as the first hour of trading comes to a close.
The Dow Jones Industrial Average is now down 224.09 points, 0.6%, at 35,406.59, the S&P is 46.32 points lower, 1.0%, at 4,530.41 while the Nasdaq Composite is down 239.47 points, 1.7%, at 14,044.44
Heading the risers in the Dow are Merck & Co Inc (NYSE:MRK) and Caterpillar Inc after further consideration of results yesterday but banks are weighing with Goldman Sachs (NYSE:GS) Group Inc and JPMorgan Chase & Co (NYSE:JPM) off 1.6% and 1.7% respectively.
Shares in Carlyle Group Inc tumbled 8.3% after the buyout group failed to benefit from a rebound in markets and struggled to drum up interest in a new flagship fund, underlining the challenge facing new chief executive Harvey Schwartz.
Schwartz, who took the helm in February, has pledged to revive profits at Carlyle during a testing period for the private equity industry.
But the company reported a 26% drop in distributable earnings to $388 million.
9:45am: Fitch downgrade weighs on equities
US stocks have tumbled in early exchanges following falls in Europe and Asia sparked by the credit rating downgrade by Fitch while investors are also ploughing through a raft of corporate updates.
Shortly, after the opening bell the Dow Jones Industrial Average was down 155.32 points, 0.4%, at 35,475.36, the S&P was 40.07 points lower, 0.9%, 4,536.66 while the Nasdaq Composite was down 191.53 points, 1.3%, at 14,092.38.
There was better news as figures showed the jobs market remained resilient despite the Fed's rate rising spree.
ADP reported private sector employment increased by 324,000 in July, beating the FXStreet cited consensus of 189,000 but easing from June's downwardly revised 455,000. June's figure was initially reported as 497,000.
It was leisure and hospitality leading the charge in July, though the interest rate-sensitive sector of manufacturing struggled, ADP explained, shedding jobs for the fifth straight month.
Service providers added 303,000 jobs, 201,000 in leisure and hospitality. Goods producers added 21,000 jobs, despite manufacturers alone cutting 36,000.
Encouragingly for the US Federal Reserve, pay growth eased again. Wage growth for job-stayed fell to 6.2% year-on-year in July, from 6.4% in June. ADP said this was the tamest rise since November 2021.
Non-farm payrolls figures are due Friday.
In company, news shares in Kraft Heinz Co (NASDAQ:KHC) edged higher after a mixed set of second quarter results.
Revenue of $6.72 billion, fell short of the consensus analyst estimate provided by Refinitiv of $6.82 billion, as inflation weighed on customers who bought fewer packaged meals and condiments.
But the foods giant recorded earnings per share for the period of $0.79, $0.03 better than the consensus forecast of $0.76.
Elsewhere, shares in CVS Health Corp (NYSE:CVS) jumped 1.8% after posting a second-quarter earnings beat as it rolled out a restructuring plan aimed at cutting costs and streamlining its operations following its recent acquisitions of healthcare services company Signify Health and primary care provider Oak Street Health.
8:00am: Wall Street called lower after Fitch cuts US credit rating
Wall Street is expected to follow European and Asian markets lower after Fitch stripped the US of its triple A rating.
In pre-market trading, futures for the Dow Jones Industrial Average were 0.3% lower, while those for the S&P 500 fell 0.5%, and contracts for the Nasdaq 100 futures were down 0.7%.
Fitch, the leading credit ratings agency, said its downgrade from AAA to AA+ reflected “expected fiscal deterioration over the next three years” and “a high and growing general government debt burden”.
Fitch also noted an “erosion of governance” over the past two decades “that has manifested in repeated debt limit stand-offs and last-minute resolutions”.
US Treasury Secretary Janet Yellen said that she "strongly" disagreed with Fitch, calling the change "arbitrary and based on outdated data."
Analysts at Capital Economics felt “it's a little strange to be downgrading the US at a time when the economy now appears poised to pull off the seemingly impossible trick of bringing inflation back to target without triggering a recession.”
Stephen Innes at SPI Asset Management thinks the downgrade is “unlikely to cause a significant Treasuries sell-off or prompt a major shift in investor behaviour mainly because investors experienced a similar downgrade from S&P in 2011 and came away unscathed.”
“It is not market-shattering news,” he said.
Wednesday’s main economic focus will be the ADP payrolls survey which comes ahead of Friday’s non-farm payrolls figures.
The pace of private sector job growth in the US is expected to have dropped to 189,000 additions in July, down from 497,000 in June, according to a FXStreet compiled consensus.
Elsewhere, it is another bumper day of US earnings. Private equity firm Carlyle, food producer Kraft Heinz, and pharmacy group CVS Health will report earnings before the opening bell.
While food delivery start-up DoorDash, online marketplace Etsy (NASDAQ:ETSY), online broker Robinhood, payments system PayPal and ecommerce company Shopify will report after the market closes.
Coffee chain Starbucks and chip maker Advanced Micro Devices will be in the spotlight following results after the closing bell Tuesday.
Meanwhile, the Federal Trade Commission will begin in-house proceedings before an administrative judge in relation to its complaint against the proposed merger of Microsoft and Activision Blizzard.