Stocks tumbled on Thursday as the latest U.S. economic data revealed a sharp slowdown in growth and raised concerns about persistent inflation. The Dow Jones Industrial Average, S&P 500, and Nasdaq Composite all closed lower, with the Dow dropping 375.12 points, or 0.98%. The first-quarter GDP growth came in at 1.6%, below economists’ estimates of 2.4%, while the personal consumption expenditures price index rose at a 3.4% pace, signaling rising inflation. This stagflationary environment, where economic growth slows while inflation rises, could pose challenges for policymakers moving forward, particularly the Federal Reserve in deciding on interest rate cuts.
Traders adjusted their expectations for a Federal Reserve rate cut following the disappointing GDP data. The market is now predicting only one interest rate cut this year based on Fed funds futures trading data. The lackluster GDP figures added pressure to a market already concerned about slowing growth in technology earnings. Meta’s stock plunged after issuing weak revenue guidance for the second quarter, while IBM also fell after missing revenue estimates for the first quarter. Questions were raised about the ability of companies to monetize generative AI technologies, impacting investor confidence in the sector.
Despite concerns about stagflation and inflation, some experts believe that the fears may be overblown. BMO Wealth Management’s chief investment officer stated that while GDP growth was lower than expected, the economy is not at risk of falling into stagflation. They highlighted strong consumer and business spending as positive indicators and forecasted a healthy growth environment for the remainder of the year. The Federal Reserve’s stance on inflation and interest rates will be crucial in navigating potential headwinds for the economy.
Technology investor Paul Meeks stood by Meta Platforms despite the sell-off, indicating he remains a long-term owner of the stock. However, he advised caution and recommended waiting for the stock to find support before considering buying more shares. Meta’s focus on artificial intelligence investments may benefit other companies like Super Micro, Arista Networks, Pure Storage, Broadcom, and AMD, according to Wells Fargo. The semiconductor sector performed well on the day, offering a bright spot in an otherwise down market.
The stock market sell-off on Thursday led to concerns about economic growth and inflation. The GDP report was described as the “worst of both worlds” by some investors, as it showed slowing economic growth and persistent inflationary pressures. The Federal Reserve now faces challenges in balancing these factors and deciding on future monetary policy actions. Despite the uncertainty, some experts believe that the economy will rebound and show positive growth throughout the year, providing a favorable backdrop for equities. The overall market sentiment remains cautious amid ongoing economic concerns and geopolitical tensions.
