(Bloomberg) — Wall Street was rattled by data that showed exactly what stock traders did not want to hear: a significant slowdown in the world’s largest economy and persistent inflation pressures.
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Stocks got hit across the board, with the S&P 500 heading toward its worst day since January — as the economic figures fueled “stagflation” jitters, bringing even more uncertainty to the path of Federal Reserve policy. Swap traders reacted accordingly — pushing back the timing of the first rate cut to December. Treasuries sold off, with two-year yields spiking to 5%.
The latest economic data interrupted a run of strong demand and muted price pressures that had fueled optimism for a “soft landing.” Gross domestic product increased at a 1.6% annualized rate, trailing forecasts. A closely watched measure of underlying inflation advanced at a greater-than-expected 3.7% clip.
“This report was the worst of both worlds: economic growth is slowing and inflationary pressures are persisting,” said Chris Zaccarelli at Independent Advisor Alliance. “The Fed wants to see inflation start coming down in a persistent manner, but the market wants to see economic growth and corporate profits increasing.”
If neither are headed in the right direction, he said, then that’s going to be “bad news” for markets.
The S&P 500 slid 1.5%, while losses in the Nasdaq 100 approached 2%. The Dow Jones Industrial Average almost wiped out its gains for 2024. Meta Platforms Inc. tumbled 14% on plans to spend billions of dollars more than it previously anticipated amid its artificial-intelligence push. Both Microsoft Corp. and Alphabet Inc. are due to deliver what are seen as pivotal reports after the market close.
Treasury 10-year yields climbed nine basis points to 4.73%. The dollar also advanced.
It appears economic growth is “coming back down to earth” after an unusually strong second half of last year, said Mike Reynolds at Glenmede.
The combination of slower growth and sticky inflation will undoubtedly increase the whispers around potential…
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