Stock markets tumble on new questions about where the economy is headed

Placeholder while article actions load

A barrage of divisive economic signals, combined with falling tech stocks, led financial markets to close April at lows last seen when the pandemic began in March 2020.

Uncertainty over the path of the economy played a role in the market turmoil on Friday, as the tech-heavy Nasdaq closed down 4.2 percent on the day and the Dow Jones Industrial Average lost 939.18 points. , or 2.8 percent. The S&P 500 sank 3.6 percent on Friday, wiping out 9.1 percent of value in April, its worst month since March 2020. And it’s down 13.8 percent in 2022, the worst start to year since World War II.

The economy is being pulled in multiple directions at once, weighed down by skyrocketing energy, food, and housing prices, while being buoyed by a tremendous job market, pent-up demand, consumers with deep savings, and a strong constant commercial investment. The coming weeks could determine which economic forces prevail and shape the fortunes of households and businesses heading into the midterms.

“The market is worried about a very fragile economic outlook, as it should be,” said Joe LaVorgna, chief Americas economist at Natixis and a former Trump White House economic adviser. “The economy is fundamentally soft: the Fed will raise next week, the situation in Ukraine is not improving, and high inflation is driving down costs.”

At the same time, vacation bookings are soaring, car sales are booming, and Americans continue to spend nonstop, thanks to higher wages and brisk hiring. However, the economy unexpectedly contracted in the first quarter, fueled by trade deficits and a drop in inventory purchases.

The economy’s diverging paths were reflected in a Commerce report on Friday that showed increases in both consumer spending, more than expected in March, and inflation, which spiked in March to the highest in more than 15 years.

Dow accumulates 900 points, while S&P 500 and Nasdaq register the worst month since March 2020

“There are so many factors that are driving our economy right now, the uncertainty and the low numbers, even though the demand is so high,” said Tara Sinclair, an economics professor at George Washington University. “That can be concerning because when companies and decision makers, from the family level to Fortune 500 companies, start worrying about the ‘R’ word, it can become a kind of self-fulfilling prophecy. ”

On Capitol Hill, politicians are taking advantage of widely divided numbers to support their policymaking activities ahead of the critical 2022 midterm elections. Two years after the worst economic crisis in generations, perhaps no issue motivates Americans more in The polls state your own finances.

Democrats insisted this week that the 1.4 percent annualized drop in gross domestic product reflects broader economic tailwinds, from new shortages in global supply chains to the shifting fallout from Russia’s invasion of Ukraine. As they have for months, party lawmakers tried to highlight other, more encouraging indicators, including a continued increase in hiring, a low unemployment rate and sustained consumer spending, all under Biden’s watch.

“Not a good sign,” Sen. Richard J. Durbin (D-Ill.), Majority Leader, said of the GDP figures during a brief interview. “[But] there are enough positive indicators that things can change.”

The economy contracts 1.4% in the first three months of the year, which increases fears of a recession

For Republicans, meanwhile, the economic downturn provided new fodder to intensify their opposition to Democrats’ legislative solutions in the face of a possible sea change this November that could lift them to majority power. Few Republican lawmakers are expected to support any of the Democrats’ efforts to combat inflation, for example, which Republicans blame on Biden’s spending policies.

“They’re hurting our economy,” said Sen. Rick Scott (R-Fla.), leader of the Republican National Senatorial Committee, whose goal is to elect the party’s lawmakers to the chamber. “It’s making it hard for people to go back to work.”

Businesses in all sectors are feeling the economic crosswinds. For example, brisk sales of Apple Watches, iPhones and MacBooks in the first three months of the year helped propel Apple sales to an all-time high of $97.3 billion. But looming concerns about war in Ukraine and coronavirus lockdowns in China, including supply chain cheating, could end up costing the company $8 billion this quarter, Apple reported. Apple closed down 3.7 percent on Friday.

And Amazon led the market’s losses on Friday with a 14 percent drop, the biggest one-day selloff in 16 years. This followed a weaker earnings report as the company this week posted its first big quarterly loss since 2015, due to a loss on its investment in electric vehicle maker Rivian.

“There is no question that the market is pricing in a recession,” said Anthony Chukumba, an analyst at Loop Capital Markets. “When you see leaders like Netflix and Amazon losing numbers by a country mile, that’s concerning, particularly when it’s happening in the tech space, which has been the market leader for so long.” (Jeff Bezos, the founder of Amazon, owns The Washington Post.)

Farm and construction equipment company Caterpillar, which posted a 14 percent jump in first-quarter sales on Thursday, also warned that widespread coronavirus lockdowns in China could reduce demand for bulldozers later this year. The company said it is also dealing with ongoing shortages and delays of components such as semiconductors. Caterpillar closed down 1 percent on Friday.

“The environment remains challenging due to supply chain constraints and the most recent COVID-19-related shutdowns in China,” CEO Jim Umpleby told analysts during an earnings call this week.

The only bright spot for the economy has been the labor market, which has added 1.7 million jobs so far this year. The US unemployment rate, at 3.6 percent, is near record lows and wages continue to rise.

“The economy hit a bump, but when you look under the hood, there’s a lot you like,” said Ken Kim, senior US economist at KPMG. “The good thing is that there is strength in the labor market. We remain optimistic about the US expanding by 2022 and we don’t see a recession on the horizon, this year or next.”

But some economists say the momentum is likely to slow later this year, especially as the Federal Reserve keeps raising interest rates in hopes of curbing inflation.

The Fed board is scheduled to meet next week and is expected to raise interest rates by another 0.5 percentage point, which will be the biggest increase since 2000, and could probably do so again in June. Investors are concerned that the bad economic news could influence future rate hikes, which is also rattling markets.

Fed officials, including Chairman Jerome H. Powell, have said they aim to guide the economy to a “soft landing” by avoiding a recession by raising interest rates enough to cool inflation, though economists say Finding the right balance will be tricky. .

“It’s hard to get from here to where the Fed wants to be on inflation without an increase in the unemployment rate or a risk of a recession,” said Diane Swonk, chief economist at accounting firm Grant Thornton, who expects unemployment to end in 2023. by more than 5 percent. “When you’re skating on thin ice, it’s not hard to fall.”

Business owners say they are also feeling pangs of uncertainty.

At Delta Children’s Products, consumers have so far been happy to splurge on baby and toddler furniture, even as the company has raised prices by as much as 25 percent to offset rising costs for raw materials and shipping. . Sales are up 12 percent this year for the company’s cribs, mattresses and strollers, which are sold at major retailers including Walmart, Pottery Barn and Buy Buy Baby.

But Chairman Joe Shamie says he is worried about the future. Birthrates are falling, meaning he has a shrinking pool of buyers, and lockdowns in China continue to weigh on production and shipping. He, too, worries that consumers will soon start to back off if they start worrying about their own financial prospects.

“We are extremely concerned about what happens next,” Shamie said. “There are a lot of holes in the economy that need to be patched.”

Aaron Gregg contributed to this report.

Add Comment