U.S. Stocks Plunge Amid Economic Worries and Policy Uncertainty
The U.S. stock market experienced a sharp decline on Friday, driven by growing concerns among consumers and businesses about the potential impact of President Donald Trump’s policies on the economy. The S&P 500 fell 1.7%, marking its worst single-day performance in two months. The Dow Jones Industrial Average dropped 748 points, or 1.7%, while the Nasdaq composite plummeted 2.2%. These losses accelerated throughout the day, fueled by weaker-than-expected economic reports that suggested slowing growth across key sectors.
Slowing Business Activity and Consumer Optimism
One of the key reports highlighting the economic slowdown came from S&P Global, which indicated that U.S. business activity is nearing a stall. The preliminary data showed a contraction in service sector activity and a 17-month low in overall growth. According to Chris Williamson, chief business economist at S&P Global Market Intelligence, companies are increasingly concerned about federal government policies, including spending cuts, tariffs, and geopolitical tensions. These worries are leading to declining sales and rising prices, as suppliers pass on the costs of tariffs to businesses.
Meanwhile, U.S. consumers are also bracing for higher inflation, partly due to the potential impact of tariffs on imported goods. A University of Michigan survey revealed that consumers now expect prices to rise by 4.3% over the next 12 months, up from their earlier forecast of 3.3%. This shift in inflation expectations reflects growing uncertainty about the economic landscape. Notably, political independents and Democrats are driving this increase in inflation concerns, while Republicans’ expectations have slightly declined.
Weaker Home Sales and Market Reactions
Another economic report highlighted a slowdown in the housing market, with sales of previously occupied homes falling short of expectations. High mortgage rates and expensive home prices have been significant barriers to sales, further signaling a cooling economy. Despite these challenges, Wall Street remains cautiously optimistic, with few analysts predicting an imminent recession. However, the widespread losses in the stock market on Friday underscored the vulnerabilities in the U.S. economy.
The Russell 2000 index of small companies, which are more closely tied to the domestic economy, experienced the steepest decline, dropping 2.9%. Within the S&P 500, three out of four stocks fell, with major tech companies, airlines, and metals firms among the biggest losers. Even companies that reported strong earnings, such as Akamai Technologies, were not spared, as investors focused on their weaker-than-expected forecasts for the upcoming year.
Winners in a Turbulent Market
Amid the broad sell-off, a few companies managed to buck the trend. Celsius Holdings, a provider of "better-for-you" energy drinks, surged 27.8% after announcing its acquisition of Alani Nu, a beverage company targeting female customers. Analysts viewed the $1.65 billion deal as reasonable and expected it to boost Celsius’ profits. Other winners included utility stocks, such as American Water Works, which rose 3.1%, as investors sought steadier investments amid economic uncertainty.
Broader Economic Implications and Global Markets
The stock market’s sharp decline came despite a strong start to the year, with the S&P 500 nearing its all-time high earlier in the week. The Federal Reserve has maintained a cautious stance, keeping interest rates steady amid concerns about inflation and the impact of Trump’s policies, including proposed tariffs and mass deportations. Treasury yields fell in response to the weaker economic data, with the 10-year Treasury yield dropping to 4.42% from 4.51% the previous day.
International markets were mixed, with European indexes showing varied performance and Asian markets largely rising. Hong Kong’s Hang Seng index stood out with a 4% gain, driven by a strong showing from Alibaba, which reported better-than-expected profits and highlighted its advancements in artificial intelligence. These developments underscore the interconnected nature of global markets and the ongoing challenges posed by economic uncertainty and policy changes.
