The Nasdaq Composite slid Wednesday and headed for its worst day since February after Fitch downgraded the long-term rating for the U.S. and risk-off sentiment resurfaced on Wall Street.
The tech-heavy index shed 2%, while Dow Jones Industrial Average tumbled 273 points, or 0.7%. The S&P 500 pulled back 1.2%.
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.
Stocks hit selloff mode Wednesday, bucking the recent market uptrend. Technology stocks led the declines as the 10-year Treasury yield punched above 4.1% to its highest level since November. Chinese tech names JD.com, Alibaba and Baidu fell more than 4% as China proposed limits smartphone use for minors. Mega caps Amazon, Alphabet, Microsoft and Nvidia slumped more than 2%.
Jay Woods, called Wednesday’s move out of technology stocks and into defensive consumer staples a long overdue “constructive rotation.”
“There is money still being put to work,: he said. “There’s no rush to the exits right now. It’s just a headline that’s given us fuel to finally move some chips around a little bit without upsetting the general overall trends which have been up since the beginning of the year when it comes to tech.”
Meanwhile, Wall Street scrutinized a fresh batch of earnings results. CVS Health rose about 4% after posting strong earnings as it trims costs, while Humana gained 6% after posting lower-than-expected medical costs. Advanced Micro Devices fell 6.6% despite better-than-expected results, while SolarEdge Technologies tumbled 19% after missing 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.
— CNBC’s Darla Mercado contributed to this report.