Most US equities retreat on SP downgrade

Dow Jones: 12,201.59 (–140.24) SP 500: 1,305.14 (–14.54) Nasdaq: 2,735.38 (–29.27):US STOCKS slumped yesterday, sending benchmark indexes to their biggest declines in a month, after Standard and Poor's ratings service cut the nation's long-term credit outlook to negative.

Caterpillar and DuPont sank at least 2 per cent to help pace the declines in the Dow Jones Industrial Average.

The Morgan Stanley Cyclical Index dropped 1.2 per cent as 26 of its 30 stocks tumbled.

Exxon Mobil and Chevron fell more than 1.4 per cent amid fears that China’s efforts to cool inflation would hurt the economy.

The Dow Jones industrial average dropped 140.24 points, or 1.14 per cent, to end at 12,201.59.

The Standard Poor’s 500 Index fell 14.54 points, or 1.10 per cent, to finish at 1,305.14.

The Nasdaq Composite Index slid 29.27 points, or 1.06 per cent, to close at 2,735.38.

“There are a lot of structural issues that need to be dealt with,” said Mike Ryan, the New York-based chief investment strategist for Wealth Management Americas at UBS Financial Services.

“Anytime you see anything that suggests that the rating could be subject to downgrade, it’s perceived negatively. If this were to raise funding costs for the government, then it would weigh on economic prospects. It’s clearly not positive for companies,” he said.

The SP 500 had rallied 4.9 per cent this year through April 15th amid higher than estimated corporate earnings and government stimulus measures.

The Fed and US agencies have lent, spent or guaranteed about $8.2 trillion to lift the economy from the worst slump since the Great Depression, according to data compiled by Bloomberg.

SP put a “negative” outlook on the US’s AAA credit rating, assigning a one-in-three chance of a ratings cut in the next two years, because of rising budget deficits and debt.

“We believe there is a material risk that US policy makers might not reach an agreement on how to address medium and long-term budgetary challenges by 2013,” New York-based SP said in a report yesterday. “If an agreement is not reached and meaningful implementation does not begin by then, this would in our view render the US fiscal profile meaningfully weaker than that of peer ‘AAA’ sovereigns.” – (Bloomberg/Reuters)