Wall Street and Nasdaq both facing substantial losses

Wall Street is falling hard and Nasdaq is suffering the biggest loss since February.

Gold ended its trading session on Wednesday with a decrease of 0.4%, marking its second consecutive day of decline. Meanwhile, the US dollar index continued to rise for the third consecutive day.

Will the repercussion last, being the main cause of the decline?

The downgrade of the US credit rating from AA+ to AAA by Fitch had a significant impact on high-risk trading. This change was strongly disliked by both the White House and US Treasury Secretary Janet Yellen. They viewed it as being unrealistic or unjustified, referring to it as a perplexing assessment. Despite the strength and resilience of the US economy, they criticized the evaluation for being based on outdated information.

The Nasdaq Technology Index in the US markets concluded its trading session with a significant drop of 2.17%, marking the second largest daily loss of 2023 and the index's largest loss since February 21.

Similarly, the S&P 500 index, encompassing the 500 biggest American corporations, experienced a decline of 1.38% to reach 4,513.39 points. The Dow Jones index experienced a decrease of almost an entire point, dropping to 35,282.52 points.

Jamie Dimon, the leader of the biggest American investment bank, JPMorgan, criticized Fitch's decision to downgrade the credit rating of the United States, labeling it as "absurd." Nonetheless, the markets still experienced a collective decline.

Today, the US market started with a decrease in futures contracts and a decline in major European markets. The Stoxx 600 index experienced a loss of 1.6%, leading to all major stock exchanges entering a state of decline.

Senior economists, including Dr. Mohamed El-Erian, Allianz's economic advisor, expressed numerous criticisms regarding Fitch's announcement, viewing it as "perplexing in terms of both its timing and rationale." Larry Summers, the former US Treasury secretary, also made a strange and inadequate announcement.

Alec Phillips, an economist at Goldman Sachs, also observed that the decision lacks backing from financial data and is likely to have limited influence as it does not rest on compelling grounds.

Phillips mentioned that the decrease in rating would not significantly affect the financial markets as it is improbable that significant owners of Treasury securities would be compelled to sell due to the rating alteration.

He further stated that Fitch's predictions are comparable to ours as they indicate a federal deficit of approximately 6% of the Gross Domestic Product in the coming years. Fitch also mentions the outlook of the CBO (Secured Bond Obligation) in its medium-term projection, therefore, the downgrade does not indicate any fresh information or a substantial disagreement regarding the financial prospects.

Despite being the first reduction of its kind since 1994, the US sovereign was downgraded by Fitch's rating agency S&P in 2011. This downgrade had a significant adverse effect on market sentiment, but Phillips observed that there was no evident obligation to sell assets at that time. This was evident as the S&P 500 managed to bounce back and increase by 15% in the subsequent year.

He pointed out that due to the significance of Treasuries as a essential asset category, most investment guidelines and regulations explicitly mention them instead of AAA-rated government debt. Additionally, he mentioned that Fitch had not made any modifications to the "US debt ceiling," which still maintains a AAA rating.

Phillips emphasized that if the US debt ceiling is reduced by Fitch, it may negatively impact other AAA-rated securities issued by US entities.

AMD is at the forefront of market declines

After reporting earnings that exceeded expectations, the stock of AMD dropped by over 7%. However, this decline was influenced by lower operating profits in comparison to the previous year's figures, as well as the fact that the company's future guidance fell short of Wall Street's hopes and predictions.

The negative outcomes had a significant impact on other enterprises within the cutting-edge industry, specifically NVIDIA (NVDA) and Marvell Technologies (MRVL).

Starbucks is still experiencing growth, and CVS's well-being is driven by robust earnings

Shares of Starbucks Inc. (SBUX) increased by around 1% following the company's second-quarter earnings surpassing expectations. However, gains were limited due to lower revenue than anticipated. The growth in same-store sales for the US coffee giant fell short of the predictions made by Wall Street, registering a 7% increase.

In the meantime, CVS witnessed an increase of almost 4% following a successful report on their earnings, with positive results in both revenue and profit. There are growing concerns regarding the long-term profitability growth of the retail pharmacy. Nevertheless, according to Chief Financial Officer Sean Gorten, the projected earnings per share (EPS) goals for 2024 and 2025 are no longer attainable.

What are the indicators of the job market?

The job market experienced an unexpected surge as private payrolls in July exceeded the highest predictions.

In July, private payrolls grew by 324,000, which was lower than the 455,000 in June, but still surpassed economists' expectations of 189,000.

Despite the better-than-anticipated private jobs report, some economists believe that the labor market is decelerating due to the interest rate increases by the Federal Reserve across various sectors of the economy.