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US stock markets fall sharply after S&P downgrade

Posted: August 8, 2011 - 9:25am
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NEW YORK — 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.

The Dow Jones industrial average fell more than 250 points minutes after the opening bell on Wall Street. It recovered some of those losses, then fell again and was down 295 points in mid-morning trading.

Stock markets in Asia began the global rout. The main stock index fell almost 4 percent in South Korea and more than 2 percent in Japan. European markets opened later and fell, too, with Germany down 3 percent and France 2.5 percent.

It was the first chance for global investors to respond to S&P's announcement late Friday that it was reducing its credit rating for long-term U.S. government debt by one notch, from AAA, the highest rating, to AA+.

The move wasn't a total surprise but came when investors were already feeling nervous about a weak U.S. economy, European debt problems and Japan's recovery from its March earthquake.

In other early trading on Wall Street, the S&P 500 index fell 36 points, or 3 percent, to 1,163. The Nasdaq composite index fell 84 points, or 3.3 percent, to 2,449. The Dow was at 11,146, down 2.6 percent.

Fresh memories of the financial crisis three years ago are also driving investors away from risky investments and into what's considered safer.

"Fear of a repeat of 2008 is what's really driving investments," said Gary Schlossberg, senior economist with Wells Capital Management.

Gold, which investors traditionally buy when they want a safe investment, rose above $1,700 per ounce for the first time Monday. Its price remains below its 1980 record after adjusting for inflation.

Prices for U.S. government debt rose — even after S&P essentially said they were a riskier investment than the debt of some other major world economies — because Treasurys are still seen as one of the world's few safe havens. Prices rise as demand increases.

The yield on the 10-year Treasury note fell much of the morning, to 2.40 percent from 2.57 percent late Friday. A bond's yield drops when its price rises.

Where Treasury prices finish the day will be more important than where they are at the start, Bill O'Donnell, head of U.S. Treasury strategy at RBS Securities, wrote in a report.

"We will learn more about the future path of Treasury prices at today's close than we will by the open," he said. "I want to see how the market clears and how it synthesizes the cacophony of news of late."

Investors are worried that Spain or Italy could become the next European country to be unable to pay its debt. The European Central Bank said it will buy Italian and Spanish bonds in hopes of helping the countries avert a possible default.

Seeking to avert panic spreading across financial markets, the finance ministers and central bankers of the Group of 20 industrial and developing nations issued a joint statement Monday saying they were committed to taking all necessary measures to support financial stability and growth.

"We will remain in close contact throughout the coming weeks and cooperate as appropriate, ready to take action to ensure financial stability and liquidity in financial markets," they said.

Crude oil, natural gas and other commodities fell on worries that a weaker global economy will mean less demand. Oil fell $2.84 to $84.04 per barrel.

Last week, the Dow Jones industrial average fell almost 700 points. That was its biggest point loss since October 2008, during the financial crisis. The Dow has dropped in nine of the last 11 trading days.

Worries about the U.S. economic recovery have been building since the government said that economic growth was far weaker in the first half of 2011 than economists expected.

The economy grew at a 1.3 percent annual rate from April through June, below economists' expectations. It expanded at just a 0.4 percent rate in the first quarter. The first half of 2011 was the slowest since the end of the recession.

Then reports showed that the manufacturing and services industries barely grew in July. Job growth was better than economists expected last month. But the 117,000 jobs created in July were still well below the 215,000 that employers added between February and April, on average.

The Federal Reserve will meet on Tuesday, but economists don't expect much to come out of the meeting. The central bank's key interest rate is already at a record of nearly zero, where it has been since 2008. The Fed has also already said that it plans to keep rates low for "an extended period."

The central bank finished a $600 billion program in June to buy Treasurys in hopes of supporting the economy. Chairman Ben Bernanke said last month that the Fed would step in to help the economy if it further weakened. But some Fed policymakers oppose more bond purchases, saying it could lead to higher inflation.

Fears about a weaker U.S. economy have overshadowed profit growth businesses have reported. Earnings rose 12 percent in the second quarter from a year earlier for the 441 companies in the S&P 500 that have already reported. Revenue growth has also topped 10 percent for the first time in a year.

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Tanking

Today Obama will give a Speech, in which he will blame Republicans, the Tea Party, Congress and anyone else he can think of for his utter failure in leadership. His plan, again, will be to raise taxes and spend more stimulus money; which again is a failed plan. His complete lack of understanding of basic economics is really scary.

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Leadership?

"You can lead a horse to water but you can't make him drink"

Obama led the republicans to a deal that would have given them almost everything they wanted excepting a balanced budget amendment and because it had a revenue increase attatched (80 billion a year) they walked away.

Basic economics dictates that you don't contract the economy during a recession. Yet that is exactly what the republicans have done. Adding hundreds of thousands to the unemployment rolls with no jobs plan other than to cut taxes.

I challenge anyone that says Obama has raised taxes. For the overwhelming majority of Americans Obama has lowered taxes repeatedly.

http://www.cbsnews.com/8301-503544_162-6201911-503544.html

Of course that doesn't fit the con job conservatives narrative so why not make up something?

I also dispute the notion that the stimulus didn't work. It's hard to prove a negative but I'll source someone who has run the numbers and done the research.

http://www.washingtonpost.com/blogs/ezra-klein/post/what-the-new-gdp-numbers-tell-us-about-stimulus/2011/07/29/gIQAj8lNhI_blog.html?wprss=ezra-klein

Whats "really scary" is complete lunacy of some on the right who were seeing default as a good thing. Not those that denied it's ramifications on the nation....those that advocated default as a way of bringing our fiscal house in order. "We must kill the economy to save it".

These harbingers of doom have steadfastly courted disaster in an effort to remake America into some sort of conservative Utopia. Intent on remaking America into the twisted view of likes of Charles Koch and Grover Norquist they are willing to sacrifice the American economy for several decades to acheive their Nirvaana.

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REPUBLICAN AND TEA PARTY MEMBERS FAULT

President Ronald Reagan`s Sept. 26, 1987, radio address on the need to raise the Debt Ceiling: "Congress consistently brings the Government to the edge of default before facing its responsibility. This brinkmanship threatens the holders of Government Bonds and those on social security and veteran benefits. Interest rates would skyrocket, instability would occur in financial markets, and the federal Deficit would soar. The United States has a special responsibility to itself and the world to meet its obligations. It means we have a well--earned reputation for for reliability and credibility -- two things that set us apart from much of the world".

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REPUBLICANS AND TEA PARTY MEMBERS FAULT

Thanks for nothing Republicans and Tea Part members. You "Threw out the baby with the bath water". "You saved a few Dollars, But! It will cost us billions if not trillions of Dollars". For your stubbornness on not raising the Debt Ceiling to cover our Country`s Obligations.

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Speech

So, Obama gave a Speech. He blamed the tanking of the market on Congress and it's refusal to implement his demands, the S&P for not understanding debt policy, and once again stated that the solution to the problem was to extend unemployment benefits and raise taxes. He still doesn't get it that his spending policies are out of control and accepts no responsibility for anything his administration does.

@spencer: quoting left-wing media like CBS and The Washington Post opinion page is just reading from the liberal playbook. How high does unemployment have to go and how low does the market have to drop to prove that Obama's stimulus spending was an abject failure? Unless you want to claim that he didn't spend enough. Obama didn't lower taxes, he extended the Bush administration tax levels (which by the way were not his but a Democrat-controlled Congress.)

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@Civitas

The problem with the nations economy "is not" Obama... Obviously you have such a well documented disgust for President Obama as much as I have for rick perry...

The nations problems for Obama were inherited from previous presidents, along with the housing greed created by the banks, mortage companies, & including the major oil companies...

Over a million homes in foreclosure, with another million in the works... fuel prices on the constant rise, and anything fuel related, will increase the price of all other commodites... simply because goods have to get to market...

If you have a better solution, i'm sure the nation & the world would love to hear about it !!

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@saddened citizen

Back to blaming someone else for Obama's policies. Yes, he inherited financial problems when he came into office which were created by the previous administration (and, as noted, the Demo controlled Congress), but he implemented horrendous spending policies anyway. He and the Dem Congress crammed Obamacare down the public's throat when every poll showed most Americans did not want it, and spend billions bailing out Fannie Mae/Freddie Mac after the Dodd/Frank bill caused their problems as well as the mortgage meltdown. Then he bailed out unions by buying up the automobile industry. I am all for everyone paying their fair share of taxes, including those deadbeats on welfare and that 50% of the population who don't pay taxes, as well as corporations who don't pay taxes. I just don't trust Obama or the Dems to decide what is "fair."

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Voters know who is causing

Voters know who is causing the problems now or making them worse. You don't go and spend $1 trillion on a healthcare "reform" bill that a majority of the voters didn't want and that does nothing to reduce medical costs or health insurance premiums when we're in a recession.

If obama truly thinks raising taxes is what is the best thing for our nation, he could have done it during the year he had a filibuster-proof Senate or during the second year when he could pass anything with reconciliation (ala healthcare "reform"). But instead.....he only cares about himself and he wanted Republicans in the sinking ship with him. He's an idiot and I will never recognize him as my President. He's a mistake and enough voters that were fooled the first time have learned that they were fooled into voting for him. They will not do it again.

But it's way too late now.

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Glad to see that the voting public

has come to understand that the problems we have been dealing with the last few years are the culmination of decades of government/fiscal/economic policies. And, are willing to push hard for law makers on both ends of the political spectrum to give up the "blame" factor and work together to work out a solution to the current situation.

Understanding the past is essential in changing the status quo for the future.

Looks to me that prostiticians are quite content with the status quo, except for those that would really like to see things get worse, before they get better.

If things get worse, it increases the likelihood that some will benefit and some will lose. I wonder who stands to benefit, and who stands to lose if things do get worse.

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