After the S&P downgrade, US stocks tumbled and the impact of the rating cut was felt across global stock markets, which were at the time already in the throes of a financial meltdown in the eurozone. Paradoxically, US Treasuries prices rose because of a flight to quality from equities.

In May, Fitch had placed its AAA rating of US sovereign debt on watch for a possible downgrade, citing downside risks including political brinkmanship and a growing debt burden.

Reduced credit ratings could lead the US to pay higher interest rates on its notes, bills, and bonds.

LPL Financial chief global strategist Quincy Krosby said the move is a warning shot to the US.

“This is a warning. Economists say that if the US doesn’t get its fiscal house in order, its currency is going to weaken, but the currency doesn’t weaken. And what Fitch is essentially saying is, it’s going to happen and the dollar is going to become a casualty.”

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“This was unexpected, kind of came from left field,” said Truist Advisory Services co-chief investment officer, Keith Lerner,

“As far as the market impact, it’s uncertain right now. The market is at a point where it’s somewhat vulnerable to bad news...”

Democrats in Congress seized on the downgrade to blame Republicans for holding up a US debt ceiling increase earlier this year.

“This is the result of Republicans’ manufactured default crisis. They’ve repeatedly put the full faith and credit of our nation on the line, and now, they are responsible for the second downgrade in our credit rating,” Democrats on the Ways and Means Committee said in a statement.

AP, Reuters, Bloomberg

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