Traders work on the floor of the New York Stock Exchange shortly after the opening bell on Wednesday, April 24, 2024. (AP Photo/Mary Altafer)
NEW YORK (AP) – Concerns about a potentially harmful cocktail of persistently high inflation and a weak economy sent U.S. stocks lower Thursday. The market was also hit by a sharp decline in the parent company of Facebook, one of the most influential stocks on Wall Street.
The S&P 500 fell 0.5%, paring some of its gains from a big winning week. In the morning, the stock had fallen by 1.6%, and it looked as though it was headed for an even worse decline.
The Dow Jones Industrial Average fell 375 points, or 1%, after dropping 700 points earlier. The Nasdaq Composite fell 0.6%.
Metaplatforms, the company behind Facebook and Instagram, fell 10.6% even though it said its latest quarterly profit beat analysts’ expectations. Investors instead focused on Meta’s promised massive investment in artificial intelligence. While AI is stirring up excitement on Wall Street, Meta also provided a range of projected future earnings, with the midpoint below analysts’ expectations, and increased spending.
Expectations were high for Meta, along with the other “Magnificent Seven” stocks that drove much of last year’s stock market returns. A high bar needs to be reached to justify the high stock price.
The overall US stock market felt further upward pressure on US bond yields after disappointing US economic data. The report tops the S&P 500 this year by saying the economy can avoid a deep recession and support strong corporate profits, even if high inflation takes time to be fully brought under control. It shattered the core expectations that had been raised over the years.
This is what Wall Street calls a “soft landing” scenario, and there have been recent hopes for a “no-landing,” in which the economy avoids recession altogether.
But Thursday’s report showed U.S. economic growth slowed to 1.6% in the first three months of this year from an annual rate of 3.4% at the end of 2023.
It was weaker than expected and that alone would have been disappointing. Making matters worse for financial markets, the report also said that inflation over the past three months was higher than economists expected. That could tie the hands of the Federal Reserve, which typically cuts interest rates to revitalize a sluggish economy.
Thursday’s economic data is likely to be revised several times as the U.S. government tweaks the numbers. But the weaker-than-expected growth and higher-than-expected inflation is “a bit of a blow for people hoping for a ‘no-landing’ scenario,” said Brian Jacobsen, chief economist at Annex Wealth Management.
“It’s too early to say the Fed has failed, as things can change significantly from quarter to quarter, but this doesn’t help their cause.”
Beneath the surface, the economic report may not have been as bad as initially thought. Much of the slowdown was due to increased imports and other factors that can fluctuate sharply and rapidly. U.S. household spending, the main driver of the economy, remained relatively steady.
The concerns raised by the report were allayed and the market was able to pare its morning losses, but the threat is not gone.
U.S. Treasury yields remained elevated as traders refrained from betting on the Federal Reserve cutting interest rates this year.
The yield on the 10-year U.S. Treasury rose to 4.70% from 4.66% just before the report, and from 4.65% late Wednesday.
Traders are primarily betting that the Fed will cut interest rates once or twice this year, according to data from CME Group. They entered this year expecting more than six. A series of reports this year showing that inflation is higher than expected has dashed those hopes.
Federal Reserve officials said they may keep key interest rates at their highest levels since 2001 for some time. Higher interest rates slow the overall economy and negatively impact investment prices, while lower interest rates could lead to a reacceleration of inflation.
This will put more pressure on companies to achieve greater profits.
Southwest Airlines fell 7% after the airline reported first-quarter results that were worse than analysts expected. Chief Executive Officer Robert Jordan said the airline was taking measures such as hiring restrictions to “address financial distress” and deal with delays in the delivery of new planes from Boeing Co. Ta.
Textron fell 9.7% after the maker of Bell Helicopter and Cessna jets reported lower-than-expected profits and revenue. Caterpillar fell 7% despite reporting better-than-expected profits. Sales for the latest quarter were below analysts’ expectations.
The winner was Chipotle Mexican Grill, which rose 6.3% after reporting stronger profit and revenue than analysts expected. Beef barbacoa and chicken stew al pastor brought in more sales, the company said.
Overall, the S&P 500 fell 23.21 points to 5,048.42. The Dow Jones Industrial Average fell $375.12 to $38,085.80, and the Nasdaq Composite Index fell $100.99 to $15,611.76.
In overseas stock markets, Japan’s Nikkei Stock Average fell 2.2% as investors waited to see if the Bank of Japan would move to support the weaker yen. In other parts of Asia and Europe, the index was mixed.
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AP Business writers Yuri Kageyama and Matt Ott contributed.
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This article has been corrected to reflect S&P 500 closing price levels. The closing price was 5,048.42, not 4,048.42.
