Yuki Iwamura/AP
According to the latest GDP report, US economic growth slowed to 1.6% in the first quarter of this year, significantly lower than expected.
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U.S. stocks fell Thursday afternoon after the latest GDP report showed that U.S. economic growth slowed to 1.6% in the first quarter of this year, much lower than expected.
The Dow Jones Industrial Average fell 441.1 points (1.2%). The S&P 500 fell 0.8% and the Nasdaq Composite fell 1.1% as investors bet on a longer period of time before the Federal Reserve's first rate cut.
“This report was a disaster in terms of slowing economic growth and continuing inflationary pressures,” Chris Zaccarelli, chief investment officer at Independent Advisor Alliance, said in a note Thursday morning. It was written.
Economic growth appears to be coming back to earth after a very strong second half of 2023. GDP growth in the third and fourth quarters of last year was 4.9% and 3.4%.
At the same time, data on Thursday showed that inflation accelerated in the first three months of this year. The annualized GDP chain price, which measures rising or falling prices in the economy and helps track inflation, jumped from 1.6%. Up to 3.1%.
“The Fed wants inflation to start falling sustainably, but the market wants economic growth and corporate profits to rise. So if neither is going in the right direction, that's bad news for the market. “It will be,” Zaccarelli wrote. .
As inflation continues to rise, investors are lowering their expectations for the Fed to cut interest rates. Only one rate cut is expected this year, according to the CME FedWatch tool. This is lower than the six expected at the beginning of the year.
Concerns about stagflation, where inflation continues even when economic growth has stopped, have also been rekindled.
JPMorgan Chase & Co. CEO Jamie Dimon warned investors about a potential period of stagflation in a speech at the New York Economic Club on Tuesday.
“Stagflation has the negative effects of slowing growth and inflation. It hurts profits, consumers and jobs. And yes, I think it can happen again,” he said. “I'm afraid it's going to look more like the 1970s than anything I've ever seen.”
From 1966 to 1981, including much of the stagflation era, investors in the U.S. stock market lost more than 35%, adjusted for inflation, according to an analysis by Ben Carlson of Ritholtz Wealth Management.
Tech stocks also fell on Thursday as investors worried that a slowing economy could hurt growth prospects amid an already tense earnings season.
Meta's stock price fell more than 11.4%. Microsoft fell 3.2%, and Amazon stock fell 2.4%.
This is a developing story and will be updated.
