U.S. shares tumbled on Thursday with the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite all dropping following weak economic data stoked fears of stagflation and a delayed Federal Reserve rate cut. Investors moved into safe-haven trades ahead of high-stress Big Tech earnings reports from behemoths Meta, Alphabet, and Microsoft. Here’s why the sell-off occurred—and what’s next.
Key Market Movers: Indices Extend Falls
Dow Jones: Dropped 550 points (-1.4%) to 37,950, its lowest since March 2023.
S&P 500: Declined 1.6% to 4,990, violating significant support at 5,000.
Nasdaq: Was headed lower, down 2.1% at 15,200 as technology stocks weakened.
The CBOE Volatility Index (VIX), Wall Street’s “fear gauge,” rose 18% to 21.5, its highest since October 2023, indicating rising investor fear.
Economic Statistics Fuel Stagflation Fears
1. Q1 GDP Growth Misses Estimates
The US economy expanded 1.6% year over year in Q1 2024, below the 2.4% forecast. Consumer spending slowed sharply to 2.5% (from 3.3% in Q4 2023), and inflation accelerated:
Core PCE inflation increased to 3.7% (from 2.0% in Q4).
Goods prices rose 1.1%, the first increase in a year.
This is the worst of both worlds—slow growth and sticky inflation,” said Diane Swonk, KPMG chief economist. “The Fed’s action just got murky.”.
2. Unemployment Claims Rise to 220,000
Weekly unemployment claims rose to 220,000 (above projected 215,000), the third week of rises in a row. Continuing claims rose to 1.82 million, the highest since January, reflecting a deteriorating labor market.
Industry Mix: Cyclicals Take the Brunt
Consumer Discretionary (↓2.8%): Amazon (-3.1%) and Tesla (-4.5%) dragged the sector down.
Industrials (↓2.2%): Caterpillar declined 3.8% due to poor machinery demand prospects.
Tech (↓2.0%): Chip shares such as Nvidia (-3.9%) and AMD (-4.2%) headed the decliners.
Defensive sectors outperformed:
Utilities (↑0.4%): Duke Energy and NextEra Energy advanced on declining bond yields.
Consumer Staples (-0.2%): Walmart contributed 1.1% as shoppers rush to necessities.
Big Tech Earnings Take Center Stage: Will Mega-Caps Rescue the Market? Everybody’s attention today is focused on post-market revenue reports from tech giants:
Meta Platforms (META): Q1 revenue of $36.1B (+26% YoY) but with ad pricing and AI spending as significant issues.
Microsoft (MSFT): Azure growth (est. 29% YoY) and Copilot takeup will drive sentiment.
Alphabet (GOOGL): YouTube ad revenue and Gemini AI innovations are in the limelight.
Technology needs to report flawless results to deserve valuations at this level, warned Wedbush’s Dan Ives. “Any miss would be a cascading breakdown in the overall market.”.
Hopes of Fed Rate Reduction Ebb
Following the GDP release, the traders reduced their wagers on a September rate cut:
Sept Cut Probability: Declined to 40% (from 65% last week), per CME FedWatch.
2024 Rate Outlook: Markets now expect just one 25-basis-point reduction compared to three expected in March.
Bond yields were mixed, with the 10-year Treasury yield briefly hitting above 4.75% before falling back to 4.65%.
Investor Strategies: Flight to Safety
Gold: Rose 1.8% to $2,350/oz, near all-time highs.
Dollar Index: Rose 0.9% to 106.2, a 5-month high.
Bitcoin: Fell 5% to $63,000 on risk-off sentiment.
What’s Next? Key Events to Watch
Friday’s PCE Inflation Report: March’s core PCE (Fed’s preferred measure) is predicted at 2.7% YoY. A red-hot print would lock in “higher for longer” rates.
Big Tech Reports: Meta, Microsoft, and Alphabet report after the bell today; Amazon and Apple report next week.
Fed Meeting (April 30-May 1): Powell is expected to turn hawkish, delaying rate cut cues.
Analyst Point of View: Time to Purchase?
Morgan Stanley’s Mike Wilson was also wary: “Valuations remain rich, and revisions to earnings are negative. Wait for clearer signs of a bottom.”. At the same time, Goldman Sachs’ David Kostin suggested wagering on oversold groups: “Healthcare and utilities offer protection if stagflation persists.”. Keywords: stock market today, Dow Jones, S&P 500, Nasdaq, GDP growth, stagflation dangers, jobless claims, Federal Reserve rate cuts, Meta earnings, Microsoft shares, Alphabet earnings, Treasury yields, VIX index, recession worries, PCE inflation report. Listen to real-time coverage as Big Tech’s profits redefine the market landscape. New chat