GE loses its top credit rating

— -- But in a sign of just how devastated confidence on Wall Street has become, seeing one of the nation's most respected companies get taken down a notch to AA+ by Standard & Poor's on Thursday actually helped spur the stock market's best rally of the year. The reason? Relief that the GE downgrade wasn't more severe.

The Standard & Poor's 500 jumped 4.1% to 751. That was its third-consecutive day of gains. The 3-day, 11% rise, was its best rally since a 12% run in early December.

Meanwhile, the Dow Jones industrial average rose 240 points, or 3.5%, to 7170. GE stock, up $1.08, or 13%, to $9.57, was a key driver in the Dow's move upward.

"This has people smiling for the first time in a while," says Hugh Johnson of Johnson Illington Advisors.

The fact investors applauded a not-as-bad-as-feared downgrade of GE's credit rating shows how scarce good news has become. "The market feels a positive," says Shiro Sakamaki, GE analyst at Daiwa Institute of Research, adding investors were encouraged that the S&P maintained a stable outlook on GE, meaning another rating change in the next six months is unlikely.

Still, GE's loss of its AAA rating is a major blow to its reputation. GE was one of just six non-financial U.S. companies to have the rating. It had had the AAA rating since 1956, the same year current CEO Jeffrey Immelt was born.

Once a company falls from the AAA perch, it's rare for it to climb back. Just Phillips Petroleum and Kellogg, which lost their AAA ratings in 1953 and 1984, respectively, regained them years later — only to lose them again. (AAA-rated now: Automatic Data Processing, Microsoft, Pfizer, ExxonMobil and Johnson & Johnson.)

And bond investors still remain cautious regarding GE. A GE Capital bond maturing in September 2017, for instance, closed with a yield Thursday of 5.55 percentage points greater than Treasuries with the same maturity, says bond data provider Tradeweb, vs. the 3.36-point premium S&P says is typical for comparable bonds. That means bond investors anticipate further GE downgrades as the economy sours, says Robert Maltbie of Singular Research.