Stocks finish lower Thursday, as investors counted the cost of a big slump in Meta Platforms and a first quarter GDP report that showed slowing growth and faster-than-expected inflation pressures.
The Dow Jones Industrial Average lost 375 points, or 0.98%, 38,085.73, while S&P 500 dropped 23 points, or 0.46%, 5,048.42, while the tech-heavy Nasdaq fell 100 points, or 0.64%, to 15,611.76.
“The economy will likely decelerate further in the following quarters as consumers are likely near the end of their spending splurge,” said Jeffrey Roach, chief economist for LPL Financial.
“Savings rates are falling as sticky inflation puts greater pressure on the consumer," he added. "We should expect inflation will ease throughout this year as aggregate demand slows, although the path to the Fed’s 2% target still looks a long ways off.”
Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, said “this report was the worst of both worlds: economic growth is slowing and inflationary pressures are persisting.”
"The Fed wants to see inflation start coming down in a persistent manner, but the market wants to see economic growth and corporate profits increasing, so if neither are headed in the right direction then that’s going to be bad news for markets," he added.
Zaccarelli said he was looking ahead to Friday’s Personal Consumption Expenditures Price Index numbers because “slowing inflation is the number one issue for the Fed and the rate cut (or even rate increase) debate has been heating up and that’s what’s injected so much uncertainty into bond and stock markets lately.”
Updated at 12:45 PM EDT
Google on Deck
Google parent Alphabet will posted first quarter earnings after the close of trading, with analysts looking for a bottom line of $1.51 per share on revenues of $78.6 billion.
The group's capex plans, which were seen rising "significantly" this year, are likely to be in sharp focus following Meta's warnings of a "multi-year" AI investment cycle
Alphabet shares were marked 2.3% lower in recent Thursday trading to change hands at $157.30, a move would trim their year-to-date gain to around 10%.
Related: Analysts eye Google spending ahead of earnings as Meta spooks AI bets
Updated at 11:20 AM EDT
Mega Meta slump
Meta shares are down 13.4% in early trading, a move that lopes around $160 billion from its market value, following last night's warnings on AI-related spending increases. The Nasdaq, meanwhile, is down 280 points, or 1.79%.
Related: Analysts reset Facebook-parent Meta stock price targets amid post-earnings plunge
Updated at 10:07 AM EDT
Stagflation risks
The S&P 500 was marked 80 points, or 1.58% lower in the opening half hour of trading, with the Dow slumping 322 points and the Nasdaq off 321 points, or 2.05%, following the Commerce Department's first quarter GDP report.
Benchmark 2-year note yields, the most-sensitive to changes in interest rate forecasts, rose 9 basis points following the GDP and inflation data to change hands at 5.014%, the highest since last November, while 10-year yields hit a fresh five-month peak of 4.731%
"This report was the worst of both worlds: economic growth is slowing and inflationary pressures are persisting," said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance
"The Fed wants to see inflation start coming down in a persistent manner, but the market wants to see economic growth and corporate profits increasing, so if neither are headed in the right direction then that’s going to be bad news for markets," he added.
S&P 500 Opening Bell Heatmap (April 25, 2024)$SPY -1.23% 🟥$QQQ -1.91% 🟥$DJI -1.16% 🟥$IWM -1.06% 🟥 pic.twitter.com/FQoxUStWWx
— Wall St Engine (@wallstengine) April 25, 2024
Updated at 8:38 AM EDT
Slowing growth, faster inflation
The U.S. economy grew at a modest 1.6% pace over the first three months of the year, Commerce Department data indicated, slowing from the 3.4% pace recorded over the previous quarter and well shy of the 2.4% paced expected by the Street.
Core inflation pressures, however, spiked to 3.7%, according to the PCE data imbedded in the report, a move that likely pushes harder against bets of a Federal Reserve rate cut later in the year.
Stocks were notably weaker in the wake of the data, with futures tied to the S&P 500 indicating a 59 point opening bell decline and the Dow called 3 points lower. Nasdaq futures indicate a 260 point decline.
Benchmark 10-year Treasury notes were marked 5 basis points higher at 4.698% while 2-year notes rose 7 basis points to 4.993%.
❖ U.S PCE PRICES (Q1) ACTUAL: 3.4% VS 1.8% PREVIOUS
— *Walter Bloomberg (@DeItaone) April 25, 2024
❖ U.S GDP PRICE INDEX (QOQ) (Q1) ACTUAL: 3.1% VS 1.7% PREVIOUS; EST 3.0%
❖ U.S CORE PCE PRICES (Q1) ACTUAL: 3.70% VS 2.00% PREVIOUS; EST 3.40%
Updated at 8:04 AM EDT
Fly American
American Airlines AAL shares surged higher in early trading after the carrier forecast adjusted profits for the current quarter of $1.15 to $1.145 per share, well above Street forecasts, that offset the sting of a $312 million loss over the three months ending in March.
American shares were marked 5.3% higher in pre-market trading to indicate an opening bell price of $14.66 each.
Stock Market Today
Meta (META) is likely to be the biggest driver of market action at the open, with the $1.25 trillion stock called 13.37% lower in premarket trading following a solid set of first-quarter earnings figures, offset by surging expenses and a muted revenue outlook.
Investor concern that AI investments aren't leading to corresponding revenue gains in the tech space weighed on shares of Big Six peers Microsoft (MSFT) and Alphabet (GOOG) , which report after the close of trading today, as well as Nvidia (NVDA) and Amazon (AMZN) .
IBM (IBM) shares, meanwhile, were marked nearly 9% lower, and set for their biggest opening-bell decline in more than two years, after the tech giant posted mixed first-quarter earnings and unveiled plans to buy cloud-computing group HashiCorp for $6.4 billion.
That's left the Nasdaq looking at an opening-bell slump of around 165 points, with the S&P 500 called 33 points lower. The Dow Jones Industrial Average, meanwhile, is priced for a 210 point decline.
"The collateral damage form Meta is negative for digital ad companies such as Alphabet, Snap, Pinterest and Roku but the AI-based capex spend is a positive for Semis/Hardware companies such as Nvidia, Vertiv and Supermicro, etc.," JPMorgan analysts said Thursday. "Interestingly, the Tech misses are seemingly supportive of the rotation to Value with Russel 2000 outperforming pre-market.”
Prior to the start of trading, investors will also navigate the Commerce Department's first estimate of first quarter GDP growth, which is expected to show the economy grew at a 2.4% pace over the three months ended in March.
Key to the report will be the pace of price increases, which is tabbed at around 3.4%, with economists focused on productivity gains that go along with a growth rate that, while slowing, remains firmly above the Federal Reserve's so-called neutral pace of inflation of 1.8%.
Benchmark 10-year Treasury note yields were little changed at 4.646% heading into the GDP reading at 8:30 a.m. U.S. Eastern Time. Two-year notes are pegged at 4.929%.
The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.25% lower at 105.596.
More Wall Street Analysts:
- Analyst unveils new Nike price target ahead of big summer for sports
- Analysts weigh in on Google-parent Alphabet’s stock after cloud event
- Analysts revamp Disney stock price target after proxy fight
In overseas markets, Japan's tech-heavy Nikkei 225 fell 2.19% in Tokyo following Meta's first-quarter report and conference call, while the regionwide MSCI ex-Japan index was marked 0.37% lower into the close of trading.
In Europe, the Stoxx 600 slipped 0.18% in Frankfurt. Britain's FTSE 100 rose 0.63% in London and hit an all-time high of 8,102.14 points earlier in the session.
Related: Veteran fund manager picks favorite stocks for 2024
