Stock prices fall after U.S. credit downgrade

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The Dow Jones industrial average quickly fell more than 200 points after the markets opened Monday morning, but then quickly made up some of the losses on the first day of trading after the United States lost its AAA credit rating with Standard & Poor’s.

Investors had been nervously awaiting Monday’s market opening after Standard & Poor’s made its announcement Friday night. Overnight, leading stock indexes in Europe and Asia fell more than 2%.

Over the weekend, Dow futures contracts were trading down nearly 250 points. The New York Stock Exchange invoked rules that allow for smoother trading when heavy activity is anticipated.

The Dow quickly fell 245 points after the opening bell but more recently was trading down 219.79 points, or 1.9%, at 11,224.82.

The Standard & Poor’s decision was not expected to force any technical changes in how the markets operate, particularly given that the other two major credit ratings agencies have maintained the U.S. at the top grade. But the move has rattled investors who are already nervous about recent economic data pointing to an economic slowdown.

Markets have fallen nearly every day for the last two weeks and are now below where they began the year.

Just before the markets opened, Vincent Farrell, the chief investment officer at Ticonderoga Securities wrote to clients: ‘What I hope is for the market to fall significantly on the open, stabilize, run up, fall down, and run up again at the end of the day. The only part of that I have any confidence in is the fall on the open part.’

With the United States’ credit risk being judged lower by Standard & Poor’s, Treasury bonds might have been expected to lose some of their luster. However, investors still appear to be using Treasuries as a haven amid global economic turmoil. The yield on the 10-year Treasury bond was down 1.1% on Monday morning, indicating that there was heavy demand for the bonds.

Gold, another haven, also saw its value rise nearly 3.1% on Monday morning.

Beyond the U.S. credit rating, investors are concerned about the longer-term prospects of the U.S. and European economies. On Sunday, the European Central Bank announced that it will initiate a program to buy the bonds of member countries in an effort to prop up the European economy.

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-- Nathaniel Popper in New York