New York
CNN
—
US shares closed decrease Thursday after the most recent GDP report confirmed that US economic growth slowed to 1.6% within the first quarter of the yr, a a lot weaker tempo than anticipated.
The Dow fell by 375 factors, or 1%; the S&P 500 was down 0.5% and the Nasdaq Composite slid by 0.6%, as buyers projected an extended anticipate the primary fee minimize from the Federal Reserve.
“This report was the worst of each worlds: financial development is slowing and inflationary pressures are persisting,” wrote Chris Zaccarelli, chief funding officer at Impartial Advisor Alliance, in a observe Thursday morning.
Financial development seems to be floating again all the way down to earth after notching a really robust second half of 2023. GDP grew by 4.9% and three.4% within the third and fourth quarters of final yr.
On the similar time, Thursday’s knowledge confirmed that inflation accelerated within the first three months of the yr: The annualized GDP chain worth, which measures how a lot costs have gone up or down within the economic system, serving to to trace inflation, jumped from 1.6% as much as 3.1%.
“The Fed needs to see inflation begin coming down in a persistent method, however the market needs to see financial development and company earnings growing, so if neither are headed in the precise path then that’s going to be dangerous information for markets,” wrote Zaccarelli.
These sticky inflation charges have pushed buyers to slash their expectations for rate of interest cuts by the Fed. They’re now anticipating only one minimize this yr, based on the CME FedWatch instrument. That’s down from an expectation for six initially of the yr.
It’s additionally introduced again fears of stagflation — when the economic system stops rising however inflation persists.
In a chat on the Financial Membership of New York on Tuesday, JPMorgan Chase CEO Jamie Dimon warned buyers a few potential interval of stagflation.
“Stagflation has the unfavorable impact of no development and inflation. That hurts earnings and customers and jobs. And sure, I believe there’s an opportunity that might occur once more,” he stated. “I fear that it appears extra just like the Seventies than we’ve seen earlier than.”
Between 1966 and 1981, a interval encompassing a lot of the stagflation period, buyers within the US inventory market misplaced greater than 35% after adjusting for inflation, based on evaluation by Ben Carlson at Ritholtz Wealth Administration.
Tech shares additionally tumbled Thursday as buyers fearful {that a} slowing economic system may damage their development prospects, in an already tense earnings season.
Shares of Meta closed 10.5% decrease. Microsoft fell by 2.5% and shares of Amazon have been down 1.7%.