The Standard and Poor's decision to strip the U.S. of its AAA rating sent already battered U.S. stock markets back into the ring for a fresh pummeling, with experts saying they see no end in sight to declines.
The Dow Jones industrials closed down 634.76 points, or 5.5 percent, to 10,809.85 Monday.
Treasurys rose, as investors viewed the downgrade as not a question of whether the U.S. will pay its bills, but rather, whether the U.S. will be able to grow enough and work its way out of the deficit burdens that prompted the downgrade in the first place.
Concerns that debt woes are spreading in Europe is also fueling fears in the U.S., and nobody knows when the dust is going to settle.
"We have a ways to go, just because we keep dropping additional shoes," says Susan Fulton, founder and at FBB Capital Markets in Bethesda, Md., according to CNBC.
"The principal lowering of the rating gave everyone time to worry. Europe is still a mess. Our dilemma is as much Europe as the United States, but that doesn't make it any easier."
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Standard and Poor's based its decision to downgrade the U.S. on sentiment that even though Congress and the White House agreed on terms to lift the $14.3 trillion debt ceiling, those terms won't do enough to address gaping deficits.
The downgrade is a first, and market watchers are still trying to figure it out.
"Everyone is trying to call a bottom now (which is never the hallmark of a panic low) and is what you would like to see to start dipping a few toes back into the market," David Rosenberg, economist and strategist at Gluskin Sheff in Toronto, said in his daily note, CNBC reports.
"The term 'buying opportunity' is posted in so many circles, and what is interesting is that you never ever hear the term 'selling opportunity' on Wall Street."
Treasury prices rose, downgrade notwithstanding, as investors still view the market as large and liquid.
The price of Treasurys rose, and yields, which move in the opposite direction from price, fell. The yield on the 10-year Treasury note fell to 2.33 percent from 2.57 percent Friday.
"This is largely a flight to safety," says Thomas Simons, money market economist with Jefferies & Co., according to the Associated Press. "The bond market is really trading off of what's going on in the stock market."
Gold set a new record, trading for more than $1,700 an ounce. Investors often buy gold when other markets roil in uncertainty.
Stocks, meanwhile, are also taking a beating on sentiment that economic recovery expected for the second half of this year is not going to happen, or at least not a strong as once hoped.
The U.S. must find a way to post stronger growth rates if it wants to generate more jobs demand and from there, more economic activity.
"In sum, S&P’s action is much less about America’s ability to repay its government debt and much more about the continued failure of policymakers to get their arms around the problems undermining growth, employment, financial soundness, and prosperity," Mohamed El-Erian, CEO of Pimco, the world's largest bond fund, writes in a CNBC guest blog.
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