After ending Tuesday’s session modestly lower, stocks showed a more substantial move to the downside during trading on Wednesday. The tech-heavy Nasdaq led the sell-off, while the Dow pulled back off its best closing level in well over a year.
The major averages climbed off their worst levels going into the close but remained sharply lower. The Nasdaq plunged 310.47 points or 2.2 percent to 13,973.45, the S&P 500 tumbled 63.34 points or 1.4 percent to 4,513.39 and the Dow slumped 348.16 points or 1.0 percent to 35,282.52.
The sell-off on Wall Street came 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drew a strong response from the U.S., with Treasury Secretary Janet Yellen calling the change “arbitrary and based on outdated data.”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 showed a substantial move to the downside on the day, resulting in a 3.8 percent nosedive by the Philadelphia Semiconductor Index.
Chipmaker Advanced Micro Devices (AMD) moved sharply lower after reporting better than expected second quarter results but providing disappointing sales guidance for the current quarter.
Significant weakness was also visible among software stocks, as reflected by the 3.0 percent plunge by the Dow Jones U.S. Software Index.
Gold stocks also saw considerable weakness amid a modest decrease by the price of the precious metal, dragging the Arca Gold Bugs Index down by 2.8 percent.
Steel, computer hardware, oil and retail stocks also showed notable moves to the downside, 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 also showed significant moves to the downside on the day. While the French CAC 40 Index tumbled by 1.3 percent, the German DAX Index and the U.K.’s FTSE 100 Index both dove by 1.4 percent.
In the bond market, treasuries climbed well off their lows of the session but remained in negative territory. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, rose 2.7 basis points to 4.078 percent after hitting a high of 4.126 percent.
Looking Ahead
Reports on weekly jobless claims, labor productivity, service sector activity and factory orders may attract attention on Thursday, although trading activity is likely to be somewhat subdued ahead of the release of the more closely watched monthly jobs report on Friday.
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