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Wall St. Falls Sharply on Economy Data 04/25 09:36
U.S. stocks are tumbling Thursday after a report suggesting flagging
economic growth and still-high inflation hurt the hopes that have kept Wall
Street high recently. A sharp drop for Meta Platforms, one of Wall Street's
most influential stocks, also dragged the market lower.
NEW YORK (AP) -- U.S. stocks are tumbling Thursday after a report suggesting
flagging economic growth and still-high inflation hurt the hopes that have kept
Wall Street high recently. A sharp drop for Meta Platforms, one of Wall
Street's most influential stocks, also dragged the market lower.
The S&P 500 was down 1.4% in early trading, slicing off two-thirds of what
had been a big winning week so far. The Dow Jones Industrial Average was down
563 points, or 1.5%, as of 9:40 a.m. Eastern time, and the Nasdaq composite was
2.1% lower.
Meta Platforms, the parent company of Facebook and Instagram, dropped 14.1%
even though it reported better profit for the latest quarter than analysts
expected. Investors focused instead on big investments in artificial
intelligence Meta pledged to make. AI has created a frenzy on Wall Street, but
Meta is increasing its spending when it also gave a forecasted range for
upcoming revenue whose midpoint fell below analysts' expectations.
Expectations had built very high for Meta, along with the other "Magnificent
Seven" stocks that drove most of the stock market's returns last year. They
need to hit a high bar to justify their high stock prices.
The entire U.S. stock market felt the pressure of another jump in Treasury
yields following the disappointing data on the U.S. economy. The report pierced
one of the main beliefs that had sent the S&P 500 to multiple records this
year: The economy can remain rugged and support strong profits for companies,
even if high inflation takes longer than expected to extinguish fully.
Instead, Thursday's report suggested the U.S. economy's growth slowed during
the first three months 2024 to a 1.6% annual rate from 3.4% at the end of 2023.
That was well below forecasts for 2.2% growth.
That by itself would have been disappointing. Making it worse for financial
markets, the report also said inflation was hotter during the three months than
economists forecast. That could tie the hands of the Federal Reserve, which
normally juices sluggish economies by cutting interest rates.
Thursday's economic data will likely get revised a couple times as the U.S.
government fine-tunes the numbers. But the lower-than-expected growth and
higher-than-expected inflation is "a bit of a slap in the face to those hoping"
for a near-perfect scenario where the economy could escape recession while
corralling high inflation, said Brian Jacobsen, chief economist at Annex Wealth
Management.
"Things can change a lot from one quarter to the next, so it's too early to
say the Fed has failed, but this doesn't help their cause."
Treasury yields surged immediately after the economic report's release as
traders pulled back on bets for cuts to rates this year by the Federal Reserve.
The yield on the 10-year Treasury jumped to 4.72% from 4.66% just before the
report and from 4.65% late Wednesday. The two-year Treasury yield, which more
closely tracks expectations for the Fed, jumped back above 5% to 5.01% from
4.93% late Wednesday.
Traders are now largely betting on the possibility of just one or maybe two
cuts to interest rates this year by the Fed, if any, according to data from CME
Group. They came into the year forecasting six or more. A string of reports
showing both inflation and the economy remaining hotter than forecast has
crushed those expectations.
Top Fed officials themselves have hinted recently that they may need to keep
rates high for a while to get full confidence inflation is heading down toward
its target. The Fed has been keeping its main interest rate at the highest
level since 2001. High interest rates slow the overall economy and hurt prices
for investments.
With interest rates looking to stay high for a while, more pressure is on
companies to deliver bigger profits.
Southwest Airlines fell 9.5% after the carrier reported worse results for
the first quarter than analysts expected. CEO Robert Jordan said the airline
was reacting quickly "to address our financial underperformance" and cope with
delayed deliveries of new planes from Boeing. It will limit hiring, offer
voluntary leave to employees and stop flying to four airports.
In stock markets abroad, Japan's Nikkei 225 slid 2.2% as investors wait to
hear whether the Bank of Japan will make any moves to prop up the tumbling
value of the yen.
Indexes were mixed elsewhere in Asia and Europe.
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