On the first day of trading after Standard and Poor’s downgraded the nation’s credit rating, markets fluctuated up and down by the minute, roiled by rapid selling as worried analysts and investors looked on. In other words, the full reality of the unprecedented downgrade hit Wall Street with a staggering force.
And while President Barack Obama addressed Americans Monday afternoon about Friday night’s downgrade, the Dow Jones Industrial Average fell from 409 to 428 points, and was down 459 at one point.
After Obama finished speaking, it shot up to 383 and hovered in the 370–390 range. Just thirty minutes later, the Dow tumbled again, down 529 for the day.
The Dow fared poorly even before the president took the podium, dropping below 400 points. . When the President started speaking, the Dow had dipped even further — 409 points lower than at the opening bell — and held at 11,034. From there, it only got worse.
By the time the market closed at 4:00 p.m., the Dow was down 633 points, or 5.54 percent, after an afternoon of ups and downs.
The mayhem followed an early morning 338-point plummet of three percent merely one hour after the markets opened Monday morning. The Dow opened at 11,434. The S&P 500 fell 46 points and the Nasdaq Composite dropped 100, both representing four percent declines. At 2:44 p.m., the S&P 500 was down 5.5 percent on the day to 1,113.75 — its lowest level since September 2010.
According to Tony Fratto, founder of Hamilton Place Strategies, Monday’s market slump was a result of massive risk aversion for three reasons: concern over the S&P downgrade, concern about the economic outlook for the United States, and “the really, really, high concern over what’s going on in Europe.” (RELATED: Kudlow on S&P downgrade: ‘Shooting the messenger is the wrong strategy here’)
“Investors are saying ‘we want to get out of risky assets like equities,'” said Fratto, “and they’re parking their money in still low-risk assets like U.S. Treasuries. And that’s where they put their money today.”
President Obama, however, tried to allay market fears, saying the U.S. has “always been and always will be a triple-A country,” and that markets would always rise and fall.
The Standard & Poor’s downgrade of U.S. credit from AAA to AA+ hit stocks hard, and the weekend saw politicos from both sides of the aisle casting blame. South Carolina Republican Sen. Jim DeMint even called for Treasury Secretary Tim Geithner’s resignation.
Administration officials, however, accused S&P of moving to downgrade based on accounting errors and shaky political predictions. Indeed, David Beers, global head of sovereign ratings at S&P, said over the weekend that the agency was pushed into downgrading in part, because of the “degree of uncertainty around the political policy process.”
“The nature of the debate and the difficulty in framing a political consensus … that was the key consideration,” Beers added.
On Monday, however, House Majority Leader Eric Cantor circulated a memo to House GOP members that amounted to a rallying cry to stand firm on revenue increases and spending cuts.
“S&P seems particularly focused on what it sees as the inability of the political parties to bridge our differences on the best way to eliminate the deficit. By this it means — in part — our unwillingness to raise taxes,” wrote Cantor.
“Over the next several months, there will be tremendous pressure on Congress to prove that S&P’s analysis of the inability of the political parties to bridge our differences is wrong,” he added. “In short, there will be pressure to compromise on tax increases. We will be told that there is no other way forward. I respectfully disagree.”
But Fratto predicts the market turmoil is here to stay, at least for a while. “I think we’re going to be at lower levels on the stock markets for some time,” he told The Daily Caller. “It’ll be a long time, I think, before we see any sign of returning to the levels we were at.”
On Tuesday, all eyes will be trained on Federal Reserve Chairman Ben Bernanke to see if he will move to influence asset values.