Stocks opened sharply lower Monday, the first day of trading after the downgrading of the U.S. government’s credit rating, extending losses from the worst trading week in more than two years and following the lead of Asian and European markets, which plummeted overnight.
The blue-chip Dow Jones industrial average plunged more than 3 percent in the first hour of trading. The Standard & Poor’s 500-stock index, a broader market measure, and the tech-heavy Nasdaq each tumbled nearly 4 percent.
918
Comments
- Weigh In
- Corrections?
The U.S. stock market joined a sell-off around the world Monday in the first trading since Standard & Poor's downgraded American debt and gave investors another reason to be anxious.(Aug. 8)
The morning declines furthered last week’s already heavy sell-offs, in which the Dow retreated 5.76 percent, the S&P fell 7.19 percent and the Nasdaq tumbled 8.13 percent. They also followed heavy selling Monday in Asia, where major stock marketsall closed down more than 1 percent, andcontinued losses in Europe.
London’s key FTSE 100 index was down 1.7 percent, while the Dax in Frankfurt slipped 2.4 percent. Stock markets in Madrid and Milan rose briefly, in response to a decision Sunday by the European Central Bank to buy up debt from Italy and Spain. But those gains were soon reversed.
And Greece banned short selling on the Athens Stock Exchange for two months, the Associated Press reported, after shares plummeted to the lowest level in 14 years.
At the same time, the ECB action — as well as a vow by the G-7 nations to take “all necessary measures to support financial stability and growth” — buoyed the bonds of both Italy and Spain Monday, driving down their borrowing costs in midday European trading.
It is unclear whether world markets are responding to the growing uncertainty over the European debt crisis, the downgrade of the U.S. credit rating--or both.
The downgrade occurred late Friday. Ratings agency Standard & Poor’s lowered the U.S. government’s top-notch AAA rating to AA+. Analysts had warned for weeks that a downgrade could lead to wide shocks in financial markets due to U.S. Treasury bonds’ ubiquitous use as a safe store of value among central banks worldwide.
However, one early positive sign was the decline of the yields on the government’s 10-year Treasury bond. The yield fell Monday to 2.47 from Friday’s close of 2.56, indicating that investors still viewed U.S. government debt as a safe place to park their money, despite the credit-rating downgrade.
Spot prices for gold, another safe-haven investment, also surged over the weekend and continued to climb Monday, topping out at $1,715.75 per troy ounce before retreating to about $1,699. The surge marked the first time the precious metal broke the $1,700 level, setting a new nominal all-time high.
Oil futures fell lower, declining $3.71 to $83.17 in early trading Monday. That price is the lowest since mid-February, when oil prices began to spike on growing uncertainty over uprisings in the Middle East.
In announcing the downgrade, S&P cited the U.S. debt burden and political paralysis in its decision to remove the nation’s sterling AAA rating. The Obama administration blasted the decision, saying it was based on faulty logic and math.
“I think S&P showed really terrible judgment,” Geithner said Sunday on NBC’s “Nightly News.” “Our country is much stronger than Washington.”
On Monday, S&P will issue more detailed guidance about the impact of the downgrade on the many entities whose own ratings rely on the U.S. government’s AAA rating. These include money market funds, government-owned corporations such as Fannie Mae and Freddie Mac, banks, insurance firms, and states and localities, including those in the Washington area.
The ratings on numerous municipalities are likely to be downgraded after the S&P action, according to a report issued Saturday by J.P. Morgan Chase.
Meanwhile, on Tuesday, the Fed is set to meet amid increasing evidence that the U.S. economic recovery is faltering.
Related content:
