(Bloomberg) — Stocks got hammered, bonds climbed and gold hit a record high, following signs of weakness in the main engine of the US economy and worries that inflation could gain further traction amid a trade war.
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With just one more session left before the end of a quarter that’s set to be the S&P 500’s worst since 2022, the gauge fell almost 2%. Data showed a plunge in US consumer sentiment and a surge in long-term inflation expectations. That was after another report underscored tepid spending and a pick-up in prices ahead of next week’s big US tariff rollout. Tech bore the brunt of the selling, with a gauge of megacaps down 3%. Longer-dated Treasuries outperformed.
To Bret Kenwell at eToro, the biggest worry is that inflation will remain elevated amid a notable slowdown in the economy.
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“And while that risk may not be the base case right now, any traction it gains could further weigh on investor sentiment. But unless there’s a larger deterioration in the economy, it’s too soon to jump on the stagflation train,” he said.
The S&P 500 slid 1.8%. The Nasdaq 100 lost 2.5%. The Dow Jones Industrial Average slipped 1.5%. All megacaps sank, with Amazon.com Inc. and Alphabet Inc. down at least 3.9%. Lululemon Athletica Inc. tumbled 14% after giving a gloomy outlook and voicing concerns about consumer spending.
The yield on 10-year Treasuries sank nine basis points to 4.27%. The dollar fell 0.1%. Canada’s loonie rose as President Donald Trump said he spoke with Canadian Prime Minister Mark Carney amid trade tensions.
US stock funds suffered their largest weekly outflow this year, while inflows continued to pour into European equities, Bank of America Corp. said, citing EPFR Global data.
“Looking ahead, the market’s recovery is expected to be turbulent, with volatility persisting until policy uncertainty clears,” said Mark Hackett at Nationwide. “However, April has historically provided a seasonal tailwind – whether that holds true this year remains to be seen given the current environment.”
Hackett noted that investor sentiment has reached extreme levels, which often serves as a contrarian signal. Historically, when sentiment has been this stretched, the S&P 500 has posted strong gains over the following six and 12 months, he said.
“All in all, investors should stay patient for now,” Hackett concluded.
UBS Global Wealth Management’s David Lefkowitz lowered his S&P 500 year-end target to 6,400 from 6,600 to account for recent economic turbulence, but he sees stocks reversing course and rising into the end of 2025.
“We still believe that US stocks can recover and post gains for the year,” he said in a Friday note to clients.
Bond traders continue to anticipate at least two quarter-point interest rate cuts by the Fed this year, both in the second half of 2025.
Fed officials left rates unchanged last week for a second straight meeting. Policymakers have said borrowing costs are well positioned to wait for greater clarity on the economic impact of President Donald Trump’s policy changes, including trade and immigration. Trump this week announced a 25% tariff on auto imports and is promising a bevy of reciprocal tariffs on April 2.
“It looks like a “wait-and-see” Fed still has more waiting to do,” said Ellen Zentner at Morgan Stanley Wealth Management. “Today’s higher-than-expected inflation reading wasn’t exceptionally hot, but it isn’t going to speed up the Fed’s timeline for cutting interest rates, especially given the uncertainty surrounding tariffs.”
Economists dialed back their expectations for US growth this year, envisioning softer consumer spending and more limited capital investment amid mounting uncertainty created by the Trump administration’s ever-evolving trade policy.
Gross domestic product is now set to grow 2% in 2025, according to the latest Bloomberg survey of economists, down from the 2.3% estimate in last month’s poll.
Inflation, meanwhile, will stay above the Fed’s 2% goal — with a key gauge finishing the year at 2.8% instead of the previous 2.5% projection.
Some of the main moves in markets**:
Stocks
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The S&P 500 fell 1.8% as of 12:25 p.m. New York time
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The Nasdaq 100 fell 2.5%
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The Dow Jones Industrial Average fell 1.5%
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The Stoxx Europe 600 fell 0.8%
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The MSCI World Index fell 1.5%
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Bloomberg Magnificent 7 Total Return Index fell 3.2%
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The Russell 2000 Index fell 2.2%
Currencies
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The Bloomberg Dollar Spot Index fell 0.1%
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The euro rose 0.3% to $1.0832
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The British pound was little changed at $1.2947
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The Japanese yen rose 0.6% to 150.07 per dollar
Cryptocurrencies
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Bitcoin fell 3.9% to $83,879.01
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Ether fell 6.7% to $1,873.23
Bonds
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The yield on 10-year Treasuries declined nine basis points to 4.27%
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Germany’s 10-year yield declined four basis points to 2.73%
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Britain’s 10-year yield declined eight basis points to 4.71%
Commodities
–With assistance from Margaryta Kirakosian and Lynn Thomasson.
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