The main stock indexes on Wall Street were sharply lower on Thursday, after the announcement earlier of surprise macroeconomic data in the US, which showed a sharp slowdown in growth in the first quarter, in an environment of persistent inflationary pressures.
On the board, the industrialist Dow Jones down 645.81 points or 1.68%, with the broadest S&P 500 to “lose” 75.70 points or 1.49%, while the technological Nasdaq recording a drop of 295.73 points or 1.89%.
U.S. Treasury yields soared after the data, with the 10-year yield (a benchmark for markets) climbing above 4.7%, its highest level since November.
US gross domestic product rose 1.6% in the first quarter, on an annual basis. Economists polled by the Dow Jones Network had forecast growth of 2.4%.
Along with the weak growth rate for the quarter, the report showed that consumer prices registered an increase of 3.4% year-on-year, well above the 1.8% rise in the previous quarter. The event heightened concern about persistent inflation and casts doubt on whether the Federal Reserve will be able to cut interest rates soon.
“In the short term, the data does not appear to be a green light for either the bulls or the bears, but if the initial reaction of the indicators is any indication, the uncertainty is unlikely to ease pressures on a market experiencing deeper recession than last year,” said Chris Larkin, managing director of E-Trade trading and investments at Morgan Stanley.
Following the first-quarter US GDP numbers, traders tempered their expectations for the Federal Reserve to ease monetary policy, now predicting just one rate cut this year, according to the CME FedWatch tool.
Lackluster GDP added further pressure to an already “strained” market, worried by the slowing pace of earnings expansion among technology companies.
Meta’s stock plunges 15% after the social media giant revised down its guidance for the second quarter. If it doesn’t recover, it will be the stock’s biggest one-day drop since October 2022. IBM stock is also down 8% as its quarterly results missed market expectations.
“Despite all the attention paid to genetic AI over the past nine months, Meta’s failure to meet its Q1 revenue growth forecasts raises questions about whether monetizing this technology will be so easy as much as corporate management had led traders to believe,” says Thierry Wizman, global FX & rates strategist at Macquarie.
Microsoft and Google parent Alphabet are expected to report results after the session closes.
Among the 30 Dow stocks, 8 are moving with a positive sign and 22 with a negative sign. The profits are led by those of Merck, Coca Cola and UnitedHealthwhile the losses of those of IBM, Caterpillar and Microsoft.
US: Weak growth, jobless claims fall
The US economy almost grew at its weakest pace in two years at the start of 2024 as both consumption and government spending eased as inflation continued to climb.
Specifically, the largest economy’s GDP grew at a 1.6% pace in the first quarter’s preliminary reading, compared with a strong 3.4% growth in the same period last year and analysts’ average estimate of a significantly smaller decline to 2, 4%.
In the individual components of the measure, the increase in the trade deficit took away much of the growth (specifically 0.86% due to net exports) while the “steam engine” of the US economy consumer spending moved at a rate significantly below forecasts, at 2.5 % vs. estimate for 3% after last quarter’s 3.3%.
At the same time, the core personal expenditure (PCE) index, the measure the Fed considers more indicative of inflationary trends, ran at a 3.7% pace in the quarter, well above analysts’ average forecast of 3.4%
According to David Donabedian of CIBC Private Wealth US, the gauge showed a worst-case scenario, “lower-than-expected growth and higher-than-forecast inflation.”
He pointed out to CNBC that “we are now not far from a complete reversal of investors’ expectations of interest rate cuts”, while in any case the measurement “forces (Fed Chairman) Powell to adopt a strict (hawkish) tone on next week’s meeting”.
They fell to the lowest level since the previous February the initial claims for unemployment benefits in the USin a new sign that tightness remains in the US labor market.
Initial claims for jobless benefits fell by 5,000 to a seasonally adjusted 207,000 for the week ended April 20, the US Labor Department said.
The average estimate of analysts in a Reuters poll had put claims at 215,000 last week.
Ongoing applications, meanwhile, fell 15,000 to 1.781 million for the week ended April 13, government data showed.
