Stocks dove Wednesday after Fitch downgraded the long-term rating for the U.S. and Wall Street assessed the fallout.
Fitch Ratings cut the long-term foreign currency issuer default rating for the U.S. to AA+ from AAA Tuesday night, citing “expected fiscal deterioration over the next three years.”
“Investors may use this Fitch downgrade as a reason to take some profits, but we think that was probably a natural part of of the market cycle anyway, after such a strong run, very little volatility,” said Mona Mahajan, senior investment strategist at Edward Jones. “Broadly speaking, this hasn’t deterred our fundamental view of the economy or markets.”
The economic picture continues showing signs of resilience, and conditions look very different than the last time U.S. credit got a rating downgrade, she added.
Technology stocks lagged during early morning trading, led to the downside by Chinese technology stocks. JD.com, Alibaba and Baidu all fell more than 4% as China proposed limits smartphone use for minors. Mega caps Amazon, Alphabet, Microsoft and Nvidia slumped more than 2%. The sector felt some pressure from the rising 10-year Treasury yield, which punched above 4.1% to its highest level since November.
On top of that, a busy earnings week carried on. Advanced Micro Devices fell 6.6% despite better-than-expected results. CVS Health rose about 4% after posting strong earnings as it trims costs. SolarEdge Technologies tumbled about 18% after missing second-quarter revenue expectations.
Earnings season is more than halfway through with results coming in stronger than expected. Of the S&P 500 companies that have reported, about 82% have posted positive surprises, according to FactSet data. The earnings beats have added to bullish investor sentiment, continuing this year’s recovery.
“A soft landing is quickly becoming consensus and stocks may take a breather post a strong rally,” said Emmanuel Cau, head of European equity strategy at Barclays. “But absent a negative catalyst to alter the goldilocks narrative, we think the grind higher can continue.”
— CNBC’s Darla Mercado contributed to this report.