Markets Still Weigh the Meaning of a U.S. Credit Rating Cut

The fallout from Fitch’s downgrade continues

Stocks appear set to open lower today, after falling yesterday in the wake of Fitch Ratings downgrading the United States’s AAA credit rating. (Treasury yields rose as well.)

White House officials, economists and some prominent Wall Street leaders said the move, which took the U.S. rating to AA+ because of concerns about growing federal deficits and political polarization, was puzzling and wouldn’t have much impact. But others have said Fitch’s move, while largely symbolic, still points to long-term troubles for the nation and its fiscal health.

The U.S. is unlikely to regain its pristine rating any time soon. Richard Francis, Fitch’s primary U.S. analyst, told The Times that a key factor behind the downgrade was America’s intense partisanship, which had led to standoffs on the debt ceiling and forestalls any efforts to reach agreement on taxes or on increasing federal spending.

“There is no willingness on any side to really tackle the underlying challenges,” Mr. Francis said.

But “it doesn’t really matter much,” Jamie Dimon, JPMorgan Chase’s C.E.O., told CNBC yesterday, echoing a common refrain to Fitch’s move. Critics of the move noted that according to criteria laid out last year by Fitch itself, including debt-to-G.D.P. ratio and macroeconomic performance, the U.S. was improving.

Indeed, investors aren’t considered likely to dump their Treasury holdings, given how central U.S. government debt is to global markets. (That’s especially helpful because the Treasury Department plans to issue more debt in the coming months.)

White House officials were surprised by Fitch’s move, believing that they had persuaded the agency’s analysts not to downgrade, according to The Washington Post. The administration scrambled to coordinate a response to Fitch’s move, including noting that the Fitch report dinged the U.S. for governance failures under Donald Trump that, it said, had actually improved under President Biden.

Among Biden administration officials’ worries is that the downgrade could become a political weapon, amid Republican criticisms about federal spending. Indeed, Representative Jason Smith of Missouri, the Republican chairman of the House Ways and Means Committee, said that Biden had “pushed America’s credit rating off the ledge” — even though Fitch said that both parties had contributed to the problems outlined in its report.

Still, some think the points raised by Fitch are valid. Two former Treasury secretaries, Hank Paulson and Tim Geithner, urged Washington to tame growing federal deficits: “Our fiscal trajectory is concerning,” Mr. Paulson told Bloomberg Television, while Mr. Geithner warned that “you want to move the system to act before it’s late and hard.”

And Quincy Krosby, the chief global strategist for LPL Financial, told Bloomberg: “Ultimately, if the deficit isn’t contained, taxes will be raised to the point that the engine of the US economy — the all-important consumer — will have considerably less discretionary income.”

In other Washington news, the hedge fund mogul Bill Ackman said he’s betting against 30-year Treasury notes, a bearish move, believing U.S. inflation will hover around an elevated 3 percent.


Donald Trump is set to appear in court today. The former president is scheduled to be arraigned in federal court in Washington to face charges that he attempted to subvert the 2020 election; the fates of unindicted co-conspirators, including Rudy Giuliani, remain unclear. Meanwhile, shortly after being indicted, Mr. Trump dined with Fox News executives, who urged him to participate in the first Republican presidential debate, which the network is hosting.

Bud Light’s owner discloses the damage from a conservative backlash. Anheuser-Busch InBev said that its U.S. revenue fell more than 10 percent in the second quarter, largely because of a plunge in sales of Bud Light. Conservatives moved to boycott the brand, long one of the country’s best-selling beers, after it collaborated with a transgender influencer on a marketing campaign.

Investors’ eyes are on Amazon and Apple today. The two will report their latest quarterly earnings after markets close, potentially giving insight into broad swaths of consumer and corporate spending. Among the key things to watch: how iPhone sales have held up and whether companies have cut spending on Amazon’s AWS cloud computing services.

Meryl Streep and George Clooney help raise millions for striking actors. The A-list stars — joined by the likes of Matt Damon, Leonardo DiCaprio and Oprah Winfrey — each gave $1 million to the SAG-AFTRA Foundation, which gives aid to workaday actors. Negotiators for Hollywood studios are seeking to resume talks with striking writers in part because of the hard-line stance of the actors’ union.

A legal cloud over WWE’s brash chairman

Federal investigators served Vince McMahon, the executive chairman of WWE, with a grand jury subpoena and a search warrant last month.

It was a reminder of ongoing questions about the pro-wrestling impresario, one of the biggest names associated with the company, as he sought to close a multibillion-dollar merger of WWE and Endeavor’s Ultimate Fighting Championship.

WWE has also received legal demands for documents, including from federal law enforcement and regulators, in the government’s inquiry into Mr. McMahon, the company disclosed in a regulatory filing yesterday. It added that no charges had been brought in the investigations.

The company said Mr. McMahon went on medical leave on July 21 following spinal surgery, days after being served the subpoena, though he remained executive chair.

A WWE representative said it “has cooperated throughout and fully understands and respects the government’s need for a complete process.” In a statement, McMahon denied intentional wrongdoing and added that he was “confident that the government’s investigation will be resolved without any findings of wrongdoing.”

It’s a reminder of the legal cloud over McMahon, who stepped down from WWE last year after The Wall Street Journal reported that he had agreed to pay $3 million to a departing employee with whom he was said to have had an affair, in exchange for a nondisclosure agreement.

A board committee later unearthed other NDAs, though it ultimately said that those expenses, paid from Mr. McMahon’s pocket, should have been marked as WWE expenses.

Mr. McMahon returned to WWE’s board in January and repaid the company $17.4 million to cover expenses tied to its own inquiry. As part of the U.F.C. deal, he is set to become executive chair of the combined company; that transaction is still expected to close later this year.

The news didn’t appear to faze WWE investors: The company’s share price rose in after-hours trading.

“In the minority, they made it sound simple. … They’ve now discovered that their majority hinges upon six people who really need some SALT relief.”

— Representative Richard Neal, Democrat of Massachusetts, on Republicans’ squabbling over limits on federal deductions for state and local taxes (known in Washington as SALT).

E.S.G. gets a rebrand

Companies have come up with a new way to fight back against the war on E.S.G.: Stop talking about E.S.G.

Almost half of the businesses polled in a new survey by the Conference Board said they were changing how they talk publicly about environmental, social and governance issues, known as E.S.G., in the face of a fierce political backlash, and turning to terms like “sustainability.”

Did Larry Fink start the shift? The BlackRock chief executive has been a longtime champion of E.S.G., proselytizing about using the approach in the firm’s investment decisions and urging companies to do the same. But he has dropped the term, saying it has been “weaponized” by politicians after conservative politicians who say it is part of a broader liberal agenda. (Mr. Fink has also been accused of hypocrisy for appointing Amin Nasser, the C.E.O. of the Saudi oil giant Aramco, to his board.)

The financial services and insurance industries are feeling the biggest backlash. Republican-led state governments and officials have targeted large asset managers and banks, some of which have pulled investments, government pension funds, and contracting work from firms that are publicly committed to E.S.G. principles. Companies are also watching for increasing skepticism from consumers, business customers and institutional investors.

The number of anti-E.S.G. shareholder proposals has increased significantly since 2020. Most of these have fallen into the governance category. This has included separating the C.E.O. and chair positions of executives believed to be overly focused on E.S.G.

Things could become tougher for E.S.G. proponents, with 43 percent of the survey respondents saying the backlash will worsen over the next two years. The debate will probably also feature heavily in the 2024 presidential race — some Republican candidates have already made attacking it central to their campaigns.

And the Supreme Court’s recent invalidation of affirmative action in college admissions makes discussion of corporate diversity and inclusion initiatives — which would fall under “S” — even more difficult.



KKR and News Corp were among those that bid for the book publisher Simon & Schuster this week; a sale is expected within weeks. (NYT)

The e-cigarette maker Juul is reported to be seeking to raise around $1 billion, after almost going bankrupt last year. (Bloomberg)

The TCW Group agreed to buy the exchange-traded funds business of Engine No. 1, the activist investment firm. (FT)

Apple and Goldman Sachs said their high-yield savings account had reached $10 billion in deposits, following a report that the Wall Street bank was weighing ending the partnership. (Bloomberg)


Meta has started blocking access to news on Facebook and Instagram in Canada, weeks before a new law takes effect requiring online platforms to pay for news content. (NYT)

U.S. prosecutors are reportedly worried that charging Binance with fraud could spark a run on the crypto exchange. (Semafor)

Best of the rest

Sorry, Twitter really should be called X now. Separately, the social network is letting subscribers to its Blue service hide their verification badges, which have become targets of online ridicule. (NYT, Insider)

“Business Meals Are Back With a Vengeance, and Everyone Feels Awkward” (WSJ)

Our colleagues want to know: How has your commute changed since the pandemic began? (NYT)

We’d like your feedback! Please email thoughts and suggestions to [email protected].

Andrew Ross Sorkin is a columnist and the founder and editor at large of DealBook. He is a co-anchor of CNBC’s “Squawk Box” and the author of “Too Big to Fail.” He is also a co-creator of the Showtime drama series “Billions.” More about Andrew Ross Sorkin

Ravi Mattu is the managing editor of DealBook, based in London. He joined The New York Times in 2022 from the Financial Times, where he held a number of senior roles in Hong Kong and London. More about Ravi Mattu

Sarah Kessler is a senior staff editor for DealBook and the author of “Gigged,” a book about workers in the gig economy. More about Sarah Kessler

Michael de la Merced joined The Times as a reporter in 2006, covering Wall Street and finance. Among his main coverage areas are mergers and acquisitions, bankruptcies and the private equity industry. More about Michael J. de la Merced

Lauren Hirsch joined The Times from CNBC in 2020, covering deals and the biggest stories on Wall Street. More about Lauren Hirsch

Ephrat Livni reports from Washington on the intersection of business and policy for DealBook. Previously, she was a senior reporter at Quartz, covering law and politics, and has practiced law in the public and private sectors.   More about Ephrat Livni

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