US equities experienced a decline Thursday afternoon following the release of the latest GDP report, which indicated a slower-than-expected economic growth rate of 1.6% in the first quarter of the year.
The Dow plummeted by 441.1 points, or 1.2%, while the S&P 500 and Nasdaq Composite slipped by 0.8% and 1.1%, respectively. Investors, anticipating a delay in the Federal Reserve’s first rate cut, responded negatively to the news.
Chris Zaccarelli, chief investment officer at Independent Advisor Alliance, characterized the report as “the worst of both worlds,” citing both decelerating economic growth and persistent inflationary pressures.
After a robust second half in 2023, economic growth now appears to be moderating. GDP surged by 4.9% and 3.4% in the third and fourth quarters of last year, respectively.
However, the latest data revealed an uptick in inflation during the first quarter, with the annualized GDP chain price rising from 1.6% to 3.1%.
Zaccarelli highlighted the divergence in priorities between the Fed and the market, with the former aiming for inflation reduction while the latter seeks economic growth and corporate profit expansion.
Persistently high inflation rates have led investors to revise their expectations for Fed interest rate cuts. The CME FedWatch tool now forecasts only one cut this year, a significant decrease from the initial expectation of six cuts.
This economic outlook has reignited concerns about stagflation, a scenario characterized by stagnant growth and persistent inflation.
JPMorgan Chase CEO Jamie Dimon, speaking at the Economic Club of New York, warned of a potential return to a stagflationary environment, reminiscent of the 1970s.
Tech stocks bore the brunt of the market downturn, as fears mounted that a slowing economy could impede their growth prospects amid an already tense earnings season.
Meta shares plunged by over 11.4%, while Microsoft and Amazon saw declines of 3.2% and 2.4%, respectively.
