NEW YORK — American stock markets faced a downturn on Friday as renewed concerns regarding tariffs and inflation weighed heavily on traders.
The S&P 500 index dropped by 0.9%, erasing previously acquired gains for the week. This decline marks one of the more significant decreases for the index thus far this year, although it remains near the record high established just two weeks prior.
The Dow Jones Industrial Average fell by 444 points, equivalent to a 1% dip, while a notable drop in Amazon’s shares following its recent earnings announcement contributed to the Nasdaq composite’s larger loss of 1.4%.
Bond markets also reacted, with Treasury yields rising after a disappointing consumer sentiment report released in the morning. The preliminary findings from the University of Michigan suggested that consumers are forecasting inflation to reach 4.3% in the coming year, marking the highest expectation since 2023.
This figure is a full percentage point higher compared to the previous month’s forecast and represents the second consecutive month of significant inflation expectations. Economists have noted that potential U.S. tariffs on various imported goods, proposed by President Donald Trump, could further increase prices faced by American consumers.
During a White House press conference, Trump indicated that he might announce a plan regarding “reciprocal tariffs” soon, potentially on Monday or Tuesday, aiming to equalize tariff rates between the U.S. and other countries.
Following the consumer sentiment report, there was also an update regarding the U.S. job market, which revealed mixed results. Hiring in the previous month was less than half of the December rate, yet the unemployment rate showed improvement, and workers experienced larger-than-expected wage growth.
When assessed collectively, this data may influence the Federal Reserve’s approach to interest rates. The Fed initiated cuts to its main interest rate in September to alleviate economic pressures but hinted at fewer rate reductions in 2025 due to persistent inflation concerns.
Interest rates remain a focal point for Wall Street, as lower rates typically boost stock prices and investments but can also propel inflation.
Scott Wren, a senior global market strategist at Wells Fargo Investment Institute, noted that the jobs report does not alter his expectation that the Fed will likely reduce the federal funds rate just once in 2025. This outlook is slightly more conservative than the consensus among traders, with many anticipating at least two cuts. However, some are betting on no cuts at all.
Wren expressed that financial markets might continue to experience volatility due to uncertainty surrounding interest rates, Trump’s tariffs, and global economic conditions.
After causing turmoil in financial markets earlier this week, apprehension regarding a potential global trade war has lessened somewhat since Trump granted 30-day reprieves for tariffs imposed on Mexico and Canada.
Stocks of major U.S. companies are in a state of fluctuation as they report earnings for the last quarter of 2024. Most companies have delivered better-than-expected results, although this isn’t always enough to sustain stock prices.
Despite exceeding analysts’ earnings expectations, Amazon’s stock still dropped by 4.1% as investors concentrated on its lower-than-anticipated revenue forecasts.
Homebuilders also faced significant losses, with predictions of fewer interest rate cuts from the Fed likely maintaining elevated mortgage rates. D.R. Horton shares declined by 5%, and Lennar’s stock fell 4.2%.
On a positive note, shares in Expedia Group surged by 17.3% after the company reported stronger-than-expected profits for the last quarter of 2024. CEO Ariane Gorin highlighted robust travel demand and announced the restoration of a dividend for shareholders, which had been paused due to the pandemic’s impact on the travel sector.
In summary, the S&P 500 concluded the day down by 57.58 points, settling at 6,025.99. The Dow Jones Industrial Average decreased by 444.23 points to 44,303.40, while the Nasdaq composite dropped by 268.59 points to 19,523.40.
In the bond market, the yield on the 10-year Treasury rose to 4.48%, up from 4.44% on Thursday. Meanwhile, the two-year Treasury yield, which aligns closely with Fed expectations, climbed to 4.28% from 4.22%.
Economists voice concerns that if U.S. households anticipate high inflation, they may begin to purchase goods ahead of time, potentially creating a self-perpetuating inflation cycle, which could prompt the Fed to maintain higher rates.
In international markets, European indexes showed modest declines following a mixed performance in Asian markets.
