Stocks continue falling as markets absorb U.S. downgrade

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U.S. stocks continued falling on the first day of trading after the United States lost its AAA credit rating with Standard & Poor’s, with the Dow Jones industrial average down more 300 points in morning trading.

Investors had been nervously awaiting Monday’s market opening after Standard & Poor’s made its announcement Friday night. Overnight, leading stock indexes in Asia fell more than 2%. Most European stock markets were recently down more than 3%.

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 was recently trading down 333.46 points, or 2.9%, at 11,111.15.

‘It’s been harried,’ said Sal Arnuk, the head of Themis Trading, which has its trading floor in Chatham, N.J. ‘We have been busy this morning.’

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 rating 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.

On Monday morning, Standard & Poor’s announced that it was also downgrading the debt of mortgage giants Fannie Mae and Freddie Mac, which rely on U.S. government guarantees.

Stock 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, 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 rating reduced 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 trading at a 2.36%, down from 2.56% on Friday, indicating that there was heavy demand for the bonds.

Gold, another haven, also saw its value rise nearly 2.7% 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 would initiate a program to buy the bonds of euro-zone countries in an effort to push interest rates down and prop up the European economy.

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-- Nathaniel Popper in New York