US Stocks Drop amid Economic Slowdown in 1Q24 and High Inflation Concerns

US stock markets experienced significant declines on Thursday following the release of new economic data indicating a notable deceleration in growth and highlighting persistent inflation concerns.

The Dow Jones Industrial Average fell by 662 points, equivalent to a 1.72% decrease. Likewise, the S&P 500 declined by 1.36% while the Nasdaq Composite saw a 1.75% drop.

The Bureau of Economic Analysis reported that US gross domestic product (GDP) grew by 1.6% in the first quarter, well below the 2.4% growth rate predicted by economists surveyed by Dow Jones. Consumer spending rose by 2.5% during the same period, a decline from the previous quarter’s 3.3% increase and lower than the 3% estimate from Wall Street analysts.

Another report revealed a rise in consumer prices of 3.4%, compared to the 1.8% increase in the prior quarter, raising concerns about persistent inflation levels and casting doubts on the possibility of near-term interest rate cuts by the Federal Reserve. Additionally, this marked the largest inflation increase so far this year. Excluding volatile food and energy prices, core PCE prices increased by 3.7%, significantly surpassing the Fed’s 2% inflation target.

Following the release of the GDP data, market participants adjusted their expectations regarding the Federal Reserve’s monetary policy easing plans. Traders are now anticipating only one interest rate cut for the year, according to the CME FedWatch Tool.