On Friday, U.S. stocks experienced a significant downturn, reflecting growing concerns among consumers and businesses about the potential impact of government policies on the economy. The S&P 500 saw its worst performance in two months, dropping 1.7%, while the Dow Jones Industrial Average fell by the same percentage. The Nasdaq composite suffered an even steeper decline of 2.2%. Reports indicated that business activity was nearing stagnation, with optimism waning due to worries over tariffs and policy changes. Additionally, consumer expectations for inflation have risen sharply, anticipating a 4.3% increase over the next year. Despite these setbacks, the market remains resilient overall, and economists do not foresee an imminent recession.
Economic Indicators Signal Slowing Growth
The day's economic reports highlighted a slowdown in various sectors. Business activity showed signs of deceleration, reaching a 17-month low, according to a preliminary report from S&P Global. Many surveyed companies expressed concerns about federal policies, including spending cuts and tariffs, which have led to increased uncertainty and higher costs. This pessimism has impacted sales and dampened growth prospects. Furthermore, the housing market faced challenges, with sales of previously owned homes falling short of expectations. High mortgage rates and expensive home prices contributed to this trend, indicating broader economic pressures.
Chris Williamson, chief business economist at S&P Global Market Intelligence, noted that companies were reporting widespread concerns about the effects of government policies. These concerns ranged from spending cuts to tariffs and geopolitical developments. Sales were reportedly affected by the uncertainty caused by the changing political landscape, and suppliers were raising prices due to tariff-related increases. The weakening business activity and rising inflation expectations paint a concerning picture of the U.S. economy's future trajectory. The services sector, in particular, saw unexpected contraction, with many businesses expressing diminished optimism about the near-term outlook.
Stock Market Reactions Reflect Broader Uncertainty
Despite the overall market downturn, some sectors fared better than others. Small-cap stocks, closely tied to domestic economic conditions, experienced sharper declines compared to larger companies. The Russell 2000 index dropped by a notable 2.9%, underscoring the sensitivity of smaller firms to economic shifts. Among large-cap stocks, three-quarters saw losses, affecting industries from technology to airlines and mining. Notable drops included Nvidia (4.1%), United Airlines (6.4%), and Newmont Mining (5.7%). Akamai Technologies faced the most significant loss in the S&P 500, plummeting 21.7%, despite reporting stronger-than-expected quarterly profits. Investors were more concerned about the company's revenue forecasts for the upcoming year.
Conversely, certain stocks performed well, driven by strategic moves or steady profit margins. Celsius Holdings surged 27.8% after announcing the acquisition of Alani Nu, a beverage company targeting female consumers. Analysts viewed the deal favorably, predicting it would boost profits. Utility companies like American Water Works also saw gains, rising 3.1%, as they offer stable earnings regardless of economic fluctuations. Overall, the market's mixed reactions highlight the uncertainty surrounding the U.S. economy. While the S&P 500 and other major indices ended lower, global markets showed varied performances, with Hong Kong's Hang Seng jumping 4% on positive news from Alibaba. Treasury yields fell in response to weaker economic data, further signaling investor caution.