Bloomberg News

S&P 500 Futures Drop as Moody’s Reviews U.S. Rating

July 14, 2011

(Corrects year of last review to 1996 in second paragraph.)

July 14 (Bloomberg) -- U.S. stock-index futures fell after Moody’s Investors Service said the American government may lose the Aaa credit rating it’s held since 1917.

Standard & Poor’s 500 Index futures expiring in September dropped 0.4 percent to 1,306.60 at 7:25 a.m. in Tokyo.

Moody’s began its first U.S. review since 1996 as talks to raise the $14.3 trillion debt limit stall, adding to concern political gridlock will lead to a default. Even a temporary default would likely have “large systemic effects” on the economy and Treasury finances by disrupting money funds, the repurchase-agreement market and foreign investor willingness to buy the government’s debt, according to JPMorgan Chase & Co.

“This is somewhat unprecedented,” said Walter “Bucky” Hellwig, who helps manage $17 billion at BB&T Wealth Management in Birmingham, Alabama. “It just creates all kinds of questions about how do you play it? Nobody thinks they will actually default, but a downgrade could mean maybe higher rates.”

Global equities rallied yesterday after Federal Reserve Chairman Ben S. Bernanke said he’s prepared to provide more stimulus if needed and China’s economic growth beat estimates. The MSCI All-Country World Index of shares in 45 nations advanced 1.1 percent as of 4:31 p.m. in New York yesterday. Moody’s said it was reviewing the U.S. rating at 5 p.m. The equity index slumped 3.4 percent during the prior three days.

The S&P 500 rose 0.3 percent as of the 4 p.m. close of U.S. exchanges, trimming its gain from 1.4 percent after the Associated Press reported that House Speaker John Boehner said it’s a “crapshoot” whether the federal debt limit will be boosted if an agreement isn’t reached by Aug. 2. AP then updated its story, quoting Boehner as saying “it’s a crapshoot” to determine what would happen if the limit isn’t increased.

“The market took the reported information for what it is worth and traded off sharply on it,” said Philip Orlando, the New York-based chief equity market strategist at Federated Investors Inc., which oversees $354.9 billion.

--With assistance from John Detrixhe and Nikolaj Gammeltoft in New York. Editors: Nick Baker, Michael Regan

To contact the reporters on this story: Nick Baker in New York at nbaker7@bloomberg.net; Whitney Kisling in New York at wkisling@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net


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