The stock market experienced a significant downturn on Friday, driven by new economic data that heightened worries regarding the health of the economy. These concerns come just ahead of anticipated new tariffs scheduled for next week. The latest figures showed that the Federal Reserve's favored measure of inflation, the personal consumption expenditures price index, rose to 2.8 percent compared to the previous year, slightly exceeding analysts' expectations.
In addition to inflation concerns, a widely recognized survey from the University of Michigan indicated a sharp decline in consumer sentiment. Comerica Bank's chief economist, Bill Adams, noted that the sluggish spending observed in the early months of the year confirms a slowdown in consumer activity during the first quarter of 2025. This combination of factors played a critical role in the stock market's performance.
The S&P 500 index fell nearly 2 percent, while the Nasdaq composite index dropped by more than 2.5 percent. The Dow Jones Industrial Average also saw a decline of over 1.5 percent on Friday, just two days after President Donald Trump announced a 25 percent tariff on imports of automobiles and auto parts. Wall Street remains uneasy about the trajectory of Trump's tariff policies, which have been marked by frequent announcements and reversals.
The White House has indicated plans to introduce more tariffs on Wednesday, an event the administration has dubbed "liberation day." Following Trump's election victory in November, the S&P 500 experienced a rally, attributed to expectations of lower taxes and reduced regulations. However, this momentum has since reversed amid trade-induced jitters, leaving major indexes at their lowest levels since mid-September.
As of now, the tech-heavy Nasdaq has dropped more than 10 percent year-to-date, while the S&P 500 is down approximately 5.1 percent. The Dow, which comprises only 30 stocks, has seen a decrease of 1.7 percent since the start of the year. The sell-off on Friday contributed to increased market volatility, with the Cboe volatility index, often referred to as Wall Street's "fear gauge," rising by 15 percent in the afternoon.
Several consumer-focused stocks faced losses on Friday. Lululemon saw a decline of around 14 percent, while Gap slid nearly 4 percent. Additionally, home goods retailers Home Depot and Lowe's each lost over 1 percent. Tech stocks were not spared either, with Alphabet dropping nearly 5 percent, Amazon losing 4.2 percent, and Apple shedding 2.6 percent.
In light of the recent economic data, Goldman Sachs has revised its expectations for the S&P 500, anticipating a weaker finish for the year due to slower economic growth and persistent trade policy uncertainty. Analysts are increasingly worried that inflation at its current levels may compel the Federal Reserve to maintain higher interest rates for an extended period. Fed Chair Jerome H. Powell has indicated that the central bank can afford to adopt a cautious approach as it evaluates the implications of new policies.
Ellen Zentner, chief economic strategist at Morgan Stanley, commented in a note to investors, "It looks like a ‘wait-and-see’ Fed still has more waiting to do." She further noted that the higher-than-expected inflation reading, while not alarmingly high, is unlikely to expedite the Fed’s timeline for cutting interest rates, particularly given the ongoing uncertainty surrounding tariffs.
