Despite a glimmer of positive news regarding the US economy, the stock market continued its downward trajectory on Thursday, with the S&P 500 declining by 1.5% in afternoon trading. This marks a significant downturn, putting the index over 10% below its recent peak. The Dow Jones Industrial Average also fell sharply, down 635 points or 1.5%, while the Nasdaq composite decreased by 2.1%. The volatility was particularly evident, with the Dow oscillating between small gains and larger losses throughout the day.
The current instability in the stock market is largely attributed to uncertainty surrounding President Trump’s tariff policies. His administration has pledged to bring manufacturing jobs back to the US and implement significant changes, including reducing the government workforce. Recently, Trump escalated tensions by threatening 200% tariffs on certain European imports, including champagne, in retaliation for the European Union’s tariffs on US whiskey.
This relentless wave of tariffs has significantly impacted consumer and business confidence, leading to fears of reduced spending which could dampen economic growth. Reports suggest that many US businesses are already noticing shifts in consumer behaviour due to the uncertainty surrounding these tariffs.
Adding to the economic concerns is the risk of “stagflation,” a situation where inflation remains high while economic growth stagnates—a scenario that few solutions exist for. Nevertheless, there was some good news on the inflation front, with recent reports indicating lower-than-expected wholesale inflation and fewer unemployment claims.
Despite these encouraging signs, the market remains skittish. Some stocks, particularly in the artificial intelligence sector, continued to decline sharply amidst criticism regarding their inflated prices during the AI boom. Notably, Palantir Technologies fell by 5.4%, while Tesla’s stock dropped 4.2% following a period of gains. Retailer American Eagle Outfitters also reported a dip in performance due to ‘less robust demand.’
Conversely, Intel saw a significant gain of 13.7% after announcing a new CEO, highlighting the mixed fortunes within the market.
In the bond market, Treasury yields fluctuated but ultimately fell, further reflecting the prevailing uncertainty about economic growth. Although a recession isn’t imminent, consumer and corporate confidence is waning, creating a complex economic landscape. Globally, stock markets in Europe and Asia experienced a mild downturn as well, although the moves were not as drastic.