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Wall Street Drops After AAA Rating Loss

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Published: August 8, 2021

Wall Street Drops After AAA Rating Loss. Stocks tumbled on Wall Street, Monday, tracking a sharp drop in global equity markets after rating agency Standard & Poor's cut the top-tier AAA credit rating of the United States.

"There were more traders than usual crowding the floor of the New York Stock Exchange at the opening," said Doreen Mogavero, a trader on the floor.

She said traders had canceled vacations and the exchange operator had brought in extra staff to make sure the systems were working properly as they anticipated a surge in volumes.

S&P cut the U.S. long-term credit rating by a notch to AA-plus late Friday on concerns about debt in the world's largest economy. The downgrade could eventually raise borrowing costs for the U.S. government, companies, as well as consumers.

"The downgrade reflects our opinion that the fiscal consolidation plan that Congress and the Administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics," S&P said in a statement late Friday after markets closed.

The Dow Jones industrial average was down over 200 points at the start of trading, Monday. Despite the downgrade, United States Treasuries rallied on Monday morning. The yield on 10-year Treasuries was around 2.51 percent.

Legendary investor Warren Buffett told CNBC Monday that there’s no question that the U.S. debt is still AAA and that he is not changing his mind about Treasurys based on S&P's downgrade.

Where Treasury prices are at the end of 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."

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