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NEW YORK (AP) -- Wall Street is heading for its worst drop in months on Wednesday as a torrid rally that critics called overdone lost momentum.
The S&P 500 was down 1.3% in afternoon trading and heading for its sharpest drop since April. It would also mark a second straight loss after hitting a 16-month high.
The Dow Jones Industrial Average was down 334 points, or 0.9%, at 35,296, as of 2:45 p.m. Eastern time, and the Nasdaq composite was 2.1% lower.
Prices were mixed in the bond market after Fitch Ratings cut the credit rating of the U.S. government. The repeated standoffs in Congress about whether to allow a default on the U.S. debt were just some of the reasons for Fitch's cut. The downgrade strikes at the core of the global financial system because U.S. Treasurys are considered some of the safest possible investments.
Fitch's move follows a similar one by Standard & Poor's in 2011, one that coincided with a European debt crisis to help cause stocks and bonds around the world to swing violently. So far, this most recent downgrade has caused less drama across markets.
While the downgrade highlights how much debt the U.S. government has and the big challenges it faces in how to pay for Social Security, Medicare and other expenses, none of that is news for investors.
"Fitch's downgrade is much ado about nothing," said Brian Jacobsen, chief economist at Annex Wealth Management.
"Yes, it's good to call out the fiscal situation, but when a country only issues debt in its own currency, the credit rating is irrelevant. Every investment fund I've looked at specifies that US Treasury securities are allowed investments, regardless of what a credit rating agency might think."
The big issues for Wall Street remain whether the economy can avoid a long-predicted recession, as hoped, and what's happening with corporate profits. And reports on both those questions came in mixed on Wednesday.
That offered fodder for critics who say investors were too quick to embrace the belief that a soft landing is surely ahead for the economy. They've been saying Wall Street had rallied too much, too quickly this year. Analysts said some of Wednesday's selling could be investors locking in profits made during the S&P 500's 19.5% run for the year through July.
One report suggested private sector hiring remains much stronger than economists expected, even if it slowed slowed from the prior month.
A job market that remains solid despite high interest rates could keep a lid on worries about a possible recession. But investors also fear a too-strong reading, which could persuade the Federal Reserve too much upward pressure still exists on inflation.
The Fed has already yanked its federal funds rate higher at tremendous speed in hopes of undercutting inflation.