Fitch Ratings cuts US credit rating to AA+

Stocks hit selloff mode Wednesday, and the Nasdaq Composite registered its worst day since February, after Fitch Ratings cut the long-term foreign currency issuer default rating for the US to AA+ from AAA Tuesday night, citing “expected fiscal deterioration over the next three years.”

There are now two companies rated more creditworthy than the US government – Microsoft & Johnson & Johnson.

The last time the US got a downgrade from a major ratings agency was in 2011 when Standard & Poor’s cut the rating to AA+ from AAA.

The economic picture continues showing signs of resilience, and conditions do however look very different compared to the last time US credit got a rating downgrade.

The tech-heavy index shed 2.17 per cent to end at 13,973.45, while the S&P 500 pulled back 1.38 per cent to close at 4,513.39. The Dow Jones Industrial Average tumbled 348.16 points, or 0.98 per cent, to finish at 35,282.52.

Wednesday’s selloff bucked the recent months-long uptrend fueled by growth stocks. Technology stocks led the declines as the 10-year Treasury yield hit its highest level since November.

Chinese tech names JD.com and Baidu fell more than 4 per cent after China proposed limits on smartphone use for minors. Alibaba dropped 5 per cent. Mega caps Amazon, Alphabet, Microsoft fell by more than 2 per cent each, while Nvidia shaved off nearly 5 per cent.

Meanwhile, Wall Street scrutinised a fresh batch of earnings results. CVS Health rose 3.3 per cent after posting strong earnings as it trims costs, while Humana gained 5.6 per cent after posting lower-than-expected medical costs. Advanced Micro Devices fell 7 per cent after issuing a disappointing forecast a day earlier, dragging down other chip stocks.

Meanwhile, SolarEdge Technologies tumbled 18.4 per cent a day after it missed revenue expectations.

Earnings season is more than halfway through and continue to come in stronger than expected. Of the S&P 500 companies that have reported, about 82 per cent have posted positive surprises, according to FactSet data.

Turning to US sectors, all closed lower except for Consumer Staples, which was the best performer, and Health. Tech, on the back of the sectors bellwethers closing lower, was the worst performer.

Futures

The SPI futures are pointing to a 0.8 per cent fall.

Currency

One Australian dollar at 7:20 AM was buying 65.38 US cents.

Commodities

Gold lost 0.19 per cent. Silver dropped 1.87 per cent. Copper fell 1.66 per cent. Oil dropped 2.31 per cent.

Figures around the globe

European markets closed lower. London’s FTSE fell 1.36 per cent, Frankfurt lost 1.36 per cent, and Paris closed 1.26 per cent lower.

Turning to Asian markets, Tokyo’s Nikkei dropped 2.30 per cent, Hong Kong’s Hang Seng fell 2.47 per cent while China’s Shanghai Composite closed 0.89 per cent lower.

The Australian sharemarket closed 1.29 per cent lower at 7355.

Ex-dividends

CVC (ASX:CVC) is paying 5 cents fully franked
Nickel Industries (ASX:NIC) is paying 2 cents unfranked
Qualitas Real Estate Income Fund (ASX:QRI) is paying 1.1893 cents unfranked

Dividends payable

Arena REIT (ASX:ARF)

Sources: Bloomberg, FactSet, IRESS, TradingView, UBS, Bourse Data, Trading Economics, CoinMarketCap.

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