New York, Aug, 6: World largest economy US has finally lost its top-notch triple-A credit rating from Standard & Poor's Friday, in a dramatic reversal of fortune for the most powerful country.
S&P cut the long-term U.S. credit rating by one notch to AA-plus on concerns about growing budget deficits and other debt problems.
"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.
"More broadly, the downgrade reflects our view that the effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges to a degree more than we envisioned when we assigned a negative outlook to the rating on April 18, 2011," the statement said.
The now estimated outlook on the new U.S. credit rating is negative, the S&P said in its statement, a sign that another downgrade is possible in the next 12 to 18 months.
On Aug. 2,US President Barack Obama signed legislation designed to reduce the fiscal deficit by $2.1 trillion over 10 years after hard bargaining on capitol hill to protect the country from the default. But that was well short of the $4 trillion in savings S&P had called for as a good "down payment" on fixing America's finances.
The political gridlock in Washington and the failure of US lawmakers to seriously address U.S. long-term fiscal issues came against the backdrop of slowing U.S. economic growth and led to the worst week in the U.S. stock market in two years.
For the week, ended on Aug,6 the Dow tumbled 5.75 %, logging its steepest weekly decline since Mar. 2009. Kraft was the only blue-chip stock to finish in the black for the week, while Bank of America lost more than 15 %.
The S&P plunged 7.18 %, while the Nasdaq sank 8.13 %, posting their biggest fall since Nov. 2008.
All three major indices are in negative territory for the year. In addition, all three indexes are also trading in deep red defined by a drop of 10 % from its peak from their intraday high in Apr. 29. This comes after stocks plunged sharply on Thursday, with the Dow sank more than 500 points, in its worst one-day drop since the subprime fiasco of December 2008.
All 10 S&P sectors finished deep in the red for the week ensed Aug. 6, led by energy, which tumbled more than 10 %.
The CBOE Volatility Index, widely considered as the best gauge of fear in the market, finished above 32 in the week.
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