Stock futures slide after Fitch’s U.S. downgrade sours the market mood

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U.S. stock futures stumbled Wednesday after markets were rattled by a downgrade to the U.S. government’s credit rating. On Tuesday, the Dow Jones Industrial Average rose 71 points, or 0.2%, to 35631, the S&P 500 declined 12 points, or 0.27%, to 4577, and the Nasdaq Composite dropped 62 points, or 0.43%, to 14284. What’s driving markets Equity-index futures are succumbing to a broad risk off tone across markets after rating agency Fitch downgraded the U.S.’s credit rating from AAA to AA+, citing “expected fiscal deterioration” and an “erosion of governance”. Fitch’s move follows a similar downgrade by S&P more than a decade ago. The U.S. Treasury market acts as a global benchmark upon which many financial products are based and so uncertainty about its stability can cause anxiety for investors. The news found a stock market arguably vulnerable to unwelcome surprises, with the S&P 500 having already gained 19.2% this year and the tech-heavy Nasdaq Composite up 36.5%. The CBOE VIX Index , an option-based gauge of expected S&P 500 volatility, jumped 16% to 16.2, its highest in nearly four weeks. Traditional perceived havens saw demand, with the Japanese yen USDJPY gaining 0.7%, gold GC00 nudging up to $1,950 an ounce, and benchmark German government bond yields moving lower. U.S. 10-year Treasury yields were little changed at 4.03%. However, most analysts did not see the downgrade causing the stock market much long term damage. “While debt downgrades seldom, if ever, have long legs, investors may pause and let the dust settle before re-entering risk markets. However, within this super market-friendly environment of stable growth and a Fed close to the end of its hiking cycle creating fertile ground for stock gains, its unlikely risk sentiment will wander too far off the soft landing path,” said Stephen Innes, managing partner of SPI Asset Management. Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said “the market remains sensitive as the final throes of earnings season rumble on, but 82% of S&P 500 companies that have reported results so far have surprised to the upside, offering a bit of a sentiment buffer.” Earnings results due Wednesday include CVS Health CVS, Humana HUM and Carlyle Group CG before the opening bell, followed after the close by PayPal PYPL, Shopify SHOP and Qualcomm QCOM. U.S. economic updates set for release on Wednesday include the ADP employment report at 8:15 a.m. Eastern.