Traders work on the floor of the New York Stock Exchange
Traders work on the floor of the New York Stock Exchange, August 4, 2011. Reuters

U.S. stocks have opened with heavy losses on Monday morning, as anticipated, following the decision by Standard & Poor’s on Friday to downgrade the U.S. government’s long-term credit rating to AA+ from AAA.

In opening minutes of trading, the Dow Jones Industrial Average is down 1.2 percent, S&P 500 has slid 2.2 percent and Nasdaq has fallen 3.1 percent.

Meanwhile, crude oil futures have tumbled more than 3.7 percent to about $83.64 per barrel, while gold is surging 2.8 percent to about $1,695 per ounce (just beneath its all-time high).

Treasury yields have slipped to 2.47 percent, as investors seek safe-haven assets (despite the fact that it was these securities that were, in fact, downgraded).

David Bianco, Chief U.S. Equity Strategist at Bank of America-Merrill Lynch wrote in a report that there might be some cause for relief among harried equity investors.

“We have always said that the stock market's reaction to a US rating downgrade would depend on the bond market, and that a muted bond market reaction would lead to a small but recoverable stock market decline,” he said.

“But given the S&P 500's steep decline last week, we think it is very possible that stocks will stage a respectable ‘on the news’ rally this week provided fixed income markets simply stay orderly.”

Bianco added, however, that a key question in assessing how much stocks may rebound in coming days - or decline further -is whether the rating downgrade, or anything else, will tip the US into recession in the near-term?

“We do not expect this correction to turn into a bear market, and we reiterate our 1400 S&P 500 year-end target,” he noted.