S&P 500 Drops After Fitch Downgrades US Government's Credit Rating; Apple Flunks On iPhone Sales, While Amazon Shares Climb To 12-Month High

As Treasury yields rose and America's credit rating got a hard blow from Fitch Ratings Inc., the S&P 500 slipped.

When yields on Treasury bonds rise, investors lean towards selling their equity assets in favor of bonds, taking down the stock market gauge.

The S&P 500 lost 2.3% on a weekly basis. The Dow Jones also dropped on Wednesday and was ultimately down 1.13% on the week. The Nasdaq Composite was the worst hit of the three major indexes, down 2.9% weekly and experiencing its worst trading day in five months Wednesday.

See Also: Stocks, Bonds Rebound, Dollar Dips As Investors Welcome Jobs Data: What’s Driving Markets Friday?

U.S. Treasury yields reached a nine-month high after the Treasury announced it would expand its long-term debt this quarter. The government's financial agency is currently trying to make up for a growing gap between tax revenue and government spending.

The 10-year Treasury note reached a yield of 4.2% this week and was 4.038% at the time of publication. The yield on the 2-year Treasury note was 4.76% Friday afternoon.

Fitch Ratings, one of the three main credit rating agencies, dropped the U.S. government's credit rating from AAA to AA+. The agency cited "expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance." 

The debt ceiling crisis of recent months, which took the government very close to reaching a default, was the main reason behind the downgrade.

U.S. Treasury Secretary Janet Yellen called the downgrade "entirely unwarranted." She pointed to the robust state of the economy, which currently boasts record lows in the unemployment rate.

The job market is showing strong resilience to the inflation crisis of this year. The private sector added 187,000 new employees in July, as per a fresh report by the Labor Department. The unemployment rate fell to 3.5%.

The White House also repudiated the decision, handing down the responsibility of nearing a default to the "extremism" of Republican officials.

• Apple AAPL reported quarterly results that exceeded analyst expectations. Shares are down 5.4% on a weekly basis. CEO Tim Cook boasted an all-time revenue record in services, but the company saw a drop in revenue from the sales of iPhone, iPad and Macs as compared to the same quarter last year.
• Amazon AMZN shares rose 8.27% on Friday after the company reported blowout profits from the second quarter, taking stocks to a 12-month high. The Seattle company had an 11% increase in sales this quarter versus last year. Amazon Web Services, its cloud computing arm, was the star of the quarter and now accounts for 70% of Amazon's $7.7 billion in operating profit.
• Digital broker Robinhood HOOD reported second-quarter revenue of $486 million, which was up 53% year-over-year, but shares dropped 12.2% this week as the company reported a decline of monthly users by 1 million, illustrating the public's disinterest in crypto trading months into a crypto winter.
• Chipmaker Qualcomm Inc's QCOM shares lost 6.4% of their value this week. The company reported a 23% yearly drop in revenue, which came in even lower than analysts were expecting. Competitor Advanced Micro Devices AMD is up 1.5% this week after the company reported a strong demand for its server and PC chips. Enthusiasm is also gathering around AMD's possible revenues coming in the second half of the year from its AI-specific product line.
• PayPal PYPL was one of the biggest losers among large-cap companies reporting earnings. The financial services firm lost 16.2% in share price this week and reported a decline in active user accounts as compared to the previous quarter.
• Starbucks SBUX shares were down 0.63% on the week after the company revealed that sales in China skyrocketed 46% this quarter. Revenues climbed 12% year-over-year.

What To Watch: Next week we'll see earnings reports from EV manufacturer Lucid Group LCID on Monday and pharmaceutical giant Eli Lilly and Company LLY on Tuesday, the same day as AMC Entertainment AMC, Fox Corp FOXA and United Parcel Service UPS. Wednesday is earnings day for The Walt Disney Company DIS and Sony Group SONY. Alibaba Group BABA reports on Thursday. Pharma investors will be paying attention to Novo Nordisk's NVO call on Friday.

On Aug. 10, expect the consumer price index for July to lend new information on the economy. Analysts will share their opinions on how the new report might affect the Federal Reserve's decision to pause or hike interest rate in the September FOMC meeting. The producer price index will add even more information and will be out on Friday, Aug. 11. 

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