On Tuesday, Disney received a positive credit rating affirmation, but today the United States experienced a downgrade in its long-term credit rating, causing media stocks and broader markets to plummet. This rare move by Fitch, a ratings agency, is a bit of a black eye for the U.S., as it lowered the government debt rating from AAA to AA+. Fitch cited fiscal and political uncertainty as the reasons behind this decision.
As the trading day came to a close, the DJIA lost 340 points, nearly 1% of its value. The Nasdaq dropped by 2.2%, the S&P 500 by 1.39%, and the Russell 2000 by 1.3%. Tech stocks listed on the Nasdaq are all in the red, with Meta, Amazon, Alphabet, and Apple experiencing declines of 3%, 2.79%, 2.5%, and 1.7% respectively. Roku and Snap are also taking a hit, while Netflix is down 2.2%.
Shares of Warner Bros. Discovery, which is set to report quarterly earnings on Thursday morning, are down 2.44%. Disney and Paramount Global are also experiencing declines of 3% and 2.7% respectively.
The Treasury Department expressed its displeasure with the downgrade, calling it “arbitrary” since a debt-ceiling deal was agreed upon by the White House and Congress in June. However, Fitch cited ongoing debt-ceiling drama and an erosion of governance as reasons for the downgrade.
White House Press Secretary Karine Jean-Pierre criticized the downgrade, stating that it “defies reality” given President Biden’s successful efforts in leading the strongest recovery among major economies worldwide.
According to the Fitch report, “The repeated debt-limit political standoffs and last-minute resolutions have eroded confidence in fiscal management.” Richard Francis, a senior director at Fitch Ratings, highlighted the polarization between the two major parties as a contributing factor to the downgrade.
In a separate development, former president and 2024 Republican front-runner Donald Trump was indicted by a federal grand jury for conspiracy in relation to his attempts to overturn the results of the 2020 U.S. presidential election.
This is not the first time the U.S. credit rating has been impacted. In 2011, under President Obama, Standard & Poor’s downgraded the rating from AAA to AA+, also citing political risk shortly after the country managed to avoid a default.
Here’s an excerpt from the Fitch report:
[Insert excerpt from the Fitch report here]
Overall, this downgrade has significant implications for the U.S. economy and financial markets, highlighting the need for fiscal stability and political unity.
