Fitch Credit Rating Downgrade Contributing To Sell-Off On Wall Street

Stocks have moved sharply lower in morning trading on Wednesday, adding to the modest losses posted in the previous session. The major averages have all moved to the downside, with the Dow pulling back off its best closing level in well over a year.

Currently, the major averages are just off their lows of the session. The Dow is down 244.87 points or 0.7 percent at 35,385.81, the Nasdaq is down 263.66 points or 1.9 percent at 14,020.25 and the S&P 500 is down 53.36 points or 1.2 percent at 4,523.37.

The sell-off on Wall Street comes after credit rating agency Fitch Ratings unexpectedly downgraded the United States’ credit rating.

Fitch downgraded the U.S.’ long-term foreign-currency issuer default rating to AA+ from AAA, citing a “steady deterioration in standards of governance over the last 20 years.”

“The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management,” Fitch said.

The move drew a strong response from the U.S., with Treasury Secretary Janet Yellen calling the change “arbitrary and based on outdated data.”

In U.S. economic news, payroll processor ADP released a report showing U.S. private sector employment jumped by much more than expected in the month of July.

ADP said private sector employment shot up by 324,000 jobs in July after surging by a downwardly revised 455,000 jobs in June.

Economists had expected private sector employment to increase by 189,000 jobs compared to the spike of 497,000 jobs originally reported for the previous month.

“The economy is doing better than expected and a healthy labor market continues to support household spending,” said ADP chief economist Nela Richardson. “We continue to see a slowdown in pay growth without broad-based job loss.”

While the report points to continued strength in the U.S. labor market, the data may lead to renewed concerns about the outlook for interest rates.

On Friday, the Labor Department is scheduled to release its more closely watched report on employment in the month of July.

Economists currently employment to increase by 200,000 jobs in July after climbing by 209,000 jobs in June, while the unemployment rate is expected to remain at 3.6 percent.

Sector News

Semiconductor stocks have shown a substantial move to the downside on the day, dragging the Philadelphia Semiconductor Index down by 2.9 percent.

Chipmaker Advanced Micro Devices (AMD) has moved sharply lower after reporting better than expected second quarter results but providing disappointing sales guidance for the current quarter.

Considerable weakness is also visible among gold stocks, as reflected by the 2.7 percent slump by the NYSE Arca Gold Bugs Index.

The weakness in the gold sector comes amid a modest decrease by the price of the precious metal, with gold for December delivery slipping $5.90 to $1,972.90 an ounce.

Steel, software, airline and banking stocks are also seeing significant weakness, moving lower along with most of the other major sectors.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved notably lower during trading on Wednesday. Japan’s Nikkei 225 Index plunged by 2.3 percent, while China’s Shanghai Composite Index slumped by 0.9 percent.

The major European markets have also shown significant moves to the downside on the day. While the U.K.’s FTSE 100 Index has tumbled by 1.3 percent, the German DAX Index is down by 1.2 percent and the French CAC 40 Index is down by 1.0 percent.

In the bond market, treasuries are extending the steep drop seen in the previous session. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is up by 5.1 basis points at 4.102 percent.

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