Stocks fell on Thursday in response to the latest U.S. economic data revealing a slowdown in growth and concerns about inflation. The Dow Jones Industrial Average dropped 375.12 points, the S&P 500 decreased by 0.46%, and the Nasdaq Composite lost 0.64%. The GDP expanded by 1.6% in the first quarter, below economists’ expectations of 2.4%, and the personal consumption expenditures price index rose at a 3.4% pace, raising worries about inflation. The Federal Reserve’s ability to cut rates may be impacted by these findings, potentially leading to a stagflationary environment.
Traders adjusted their expectations for Federal Reserve monetary policy after the GDP report, with Fed funds futures suggesting only one interest rate cut this year. Concerns over a possible pullback in growth among technology earnings have added pressure to an already tense market. Meta saw a significant drop after issuing weak revenue guidance, and other tech giants like IBM also missed revenue estimates. This has raised doubts about the impact of generative AI on revenue growth and is creating uncertainty ahead of earnings releases from companies like Microsoft and Alphabet.
Investor sentiment toward stock prices dropped to its lowest level since November, with enthusiasm below the historical average. Neutral sentiment increased, while bearish opinion remained steady, indicating a cautious outlook on the market. The Federal Reserve faces a challenging situation with the GDP report showing a slowdown in growth and persistent inflation. This has led to concerns that the Fed may be limited in its policy response to these economic conditions.
While GDP growth in the first quarter was weaker than expected and inflation spiked, there are differing opinions on the risk of stagflation. BMO’s chief investment officer believes the economy is not at significant risk of falling into stagflation and expects growth to remain stable. The outlook for equities in 2024 remains favorable despite concerns about inflation and growth, with expectations for a healthy growth environment and moderate inflation.
Amid a sell-off in tech stocks, Meta Platforms, formerly Facebook, faced significant losses following weak revenue guidance. However, technology investor Paul Meeks remains optimistic about the company in the long term but is waiting for more earnings reports before making any decisions. Meta’s increased spending on AI could benefit other companies in the industry, leading to potential gains for Super Micro, Arista Networks, Pure Storage, Broadcom, and AMD. Chipmaker ETFs showed strength on Thursday, providing a bright spot for investors during a challenging market session.
The New York Stock Exchange saw a significant decrease in advancers compared to decliners, reflecting widespread negative sentiment following the GDP report and underwhelming tech earnings. The U.S. GDP report raised concerns about slowing economic growth and persistent inflation, creating uncertainty in the market. The 10-year Treasury yield reached its highest level since November, indicating investor reaction to the economic data. Overall, the market faced challenges due to a combination of factors impacting growth and inflation, leading to a cautious and uncertain investor outlook.
