Wall Street Falls, S&P 500 Drops 2% After GDP, Jobs Data Disappoint/ Newslooks/ WASHINGTON/ J. Mansour/ Morning Edition/ U.S. stocks fell sharply Wednesday after reports showed the economy unexpectedly shrank and private sector hiring slowed. The S&P 500 tumbled 2% amid fears of stagflation and fallout from Trump’s escalating trade war. AI stocks and consumer giants like Starbucks led the market lower as investor anxiety grows.
Market Turmoil Deepens: Quick Looks
- S&P 500 down 2%, breaking six-day winning streak
- Dow plunges 700+ points; Nasdaq off 2.5%
- U.S. GDP shrank 0.3% in Q1, worst since 2022
- Trump’s tariffs blamed for trade distortions, business disruption
- Economists warn of possible stagflation risk
- Private hiring growth slowed sharply in April, ADP data shows
- AI darling Super Micro plunges 18% after slashed outlook
- Nvidia down 3.6%, dragging major indexes lower
- Starbucks sinks 8.3% after disappointing earnings
- 10-year Treasury yield slips to 4.16%, signaling investor caution
Wall Street Falls, S&P 500 Drops 2% After GDP, Jobs Data Disappoint
Deep Look
Markets Slide as GDP Shrinks, Tariff Fears Roil Wall Street
NEW YORK — A double dose of economic disappointment sent Wall Street into a tailspin Wednesday, with major indexes falling after a surprise economic contraction and signs of weakening job growth. The S&P 500 dropped 2% by mid-morning, snapping a six-day winning streak. The Dow Jones Industrial Average plunged over 700 points, while the tech-heavy Nasdaq led losses with a 2.5% retreat.
The trigger: a report from the Commerce Department showing the U.S. economy shrank by 0.3% in the first quarter — the first quarterly decline since 2022. Analysts had expected mild growth. But a rush of imports ahead of President Donald Trump’s latest tariffs, combined with weak consumer spending and a sharp drop in government outlays, dragged growth into negative territory.
“This was a warning shot for the markets,” said Ellen Zentner, chief economist at Morgan Stanley. “It’s the kind of report that sparks fears of stagflation.”
Stagflation in Focus
Stagflation — stagnant growth paired with high inflation — is a worst-case scenario for policymakers, leaving the Federal Reserve with few good options. Lowering interest rates to boost growth risks igniting inflation, while raising rates to curb prices could further slow the economy.
Also rattling markets was a private-sector employment report from ADP showing that hiring in April came in at less than half the expected pace. With the labor market serving as one of the few economic bright spots in recent months, the miss raised red flags.
Tariff Fallout Looms Large
The poor Q1 performance came before most of Trump’s 145% tariffs on Chinese imports and other protectionist moves were fully implemented. Economists now warn the worst may be yet to come.
Trump’s unpredictable approach to trade policy — announcing tariffs with little notice and threatening escalation — has created deep uncertainty for businesses, many of which frontloaded imports early in the year to avoid price hikes. That surge distorted trade balances and deepened the GDP contraction.
Markets have been whipsawed by the resulting uncertainty. The S&P 500 briefly neared bear market territory in April, falling nearly 20% from recent highs before rebounding slightly on hopes Trump might ease back on tariffs.
Tech and Consumer Stocks Get Hit
Corporate earnings have helped buoy the market in recent weeks, but not enough to offset Wednesday’s bad news.
AI hardware leader Super Micro Computer plunged 18% after warning that customer demand had weakened and cutting its sales forecast. That spooked investors in the red-hot AI sector, with Nvidia shedding 3.6%, weighing heavily on the broader S&P 500.
Starbucks, meanwhile, dropped 8.3% after missing analyst estimates for both revenue and profit despite notching its first sales increase in over a year. The company acknowledged that its turnaround plan has yet to fully gain traction.
“Big Tech and consumer giants carried this market last year. Now they’re at the heart of the sell-off,” said Josh Morgan, strategist at LPL Financial.
Bond Yields Slip, Recession Fears Rise
In the bond market, Treasury yields declined as investors sought safety. The yield on the 10-year Treasury note dropped to 4.16% from 4.19%, signaling reduced confidence in economic resilience.
That follows a chaotic month in credit markets, where earlier spikes in yields had unnerved both Wall Street and Washington, with some fearing a loss of investor confidence in U.S. government debt.
Globally, markets showed mixed reactions. European stocks drifted lower, while Asia saw modest gains as investors there awaited cues from the Fed and Trump’s next trade moves.
What’s Next?
Investors will get a clearer picture Friday when the government releases its closely watched jobs report. A weak number could increase recession fears — or boost expectations of Fed intervention.
“The market’s now hyper-sensitive to every data point,” said Melissa Frankel of Vanguard. “With Trump’s tariffs in the mix, it’s like trying to drive in the fog — you don’t know what’s around the next bend.”
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