US stocks took a hit on Thursday morning after the release of the latest GDP report, which showed that US economic growth had slowed to 1.6% in the first quarter of the year. This was a much weaker pace than expected, causing a downturn in the markets. The Dow fell by 681 points, the S&P 500 was down 1.5%, and the Nasdaq Composite slid by 1.9% as investors anticipated a longer wait for the first rate cut from the Federal Reserve.
The chief investment officer at Independent Advisor Alliance, Chris Zaccarelli, described the report as the “worst of both worlds,” highlighting the slowing economic growth and persisting inflationary pressures. After a strong second half of 2023, economic growth had started to float back down to earth. GDP growth had reached 4.9% and 3.4% in the third and fourth quarters of the previous year. However, the latest data showed that inflation had accelerated in the first three months of the year, with the annualized GDP chain price jumping from 1.6% to 3.1%.
Investors have adjusted their expectations for interest rate cuts by the Fed in response to the sticky inflation rates. They now anticipate just one cut this year, a significant decrease from the previously expected six cuts at the beginning of the year. The persisting inflation rates have also brought back fears of stagflation, a situation where the economy stagnates but inflation remains high. JPMorgan Chase CEO Jamie Dimon warned investors about the potential of a period of stagflation during a talk at the Economic Club of New York.
The concept of stagflation has negative effects on growth, profits, consumers, and jobs. Dimon compared the current economic environment to the 1970s, a period marked by high inflation and slow growth. Investors are concerned that a slowing economy could adversely impact tech stocks, and this fear was evident in the market as shares of companies like Meta, Microsoft, and Amazon experienced significant drops in early trading. The situation is still evolving, and the impact of these economic factors on the market is being closely monitored.
