Economy, not debt rating, will send markets lower

NEW YORK — U.S. investors will have their first chance Monday to react to Standard & Poor’s decision to strip the U.S. government of its top credit rating. But the bigger issues facing Wall Street and stock markets worldwide remain debt-ridden countries in Europe and concerns that the global economy is weakening.

Friday’s first-ever downgrade of U.S. long-term debt from AAA to AA+ wasn’t unexpected and may have little impact on interest rates. But it’s the kind of news that stock markets don’t need when investors are already nervous.

Even before the downgrade, the Dow Jones industrial average last week fell nearly 700 points, or 6 percent. Investors were worried because economic signals in the U.S. and overseas were pointing toward trouble:

    — On July 29, the government dramatically lowered its estimate of how much the economy grew during the first quarter. It had said the economy grew at an annual rate of 1.3 percent, but revised that number down to 0.4 percent. Second-quarter growth was also weak, a 1.3 percent rate.

    —European officials are trying to help Italy — the world’s eighth-largest economy — avoid the kind of bailouts that Greece, Portugal and Spain were forced to accept to prevent them from defaulting on their debt. And those bailouts haven’t solved all the problems in those countries.

    —The first reports on the economy during the third quarter have been mixed. Manufacturing, which helped pull the economy out of the recession, fell to its weakest level since July 2009

    — the month after the recession officially ended. The Labor Department said 117,000 jobs were created last month. But that came after 99,000 jobs were created in May and June combined
   
    — and 250,000 new jobs are needed each month to reduce unemployment.

As a result, financial analysts interviewed today said they expect markets to be volatile this week — and beyond.



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