Wall Street Faces Setbacks Amid Concerns over Tariffs and Inflation

By an Associated Press Writer

NEW YORK — U.S. stocks faced significant declines on Friday as growing concerns about tariffs and inflation resurfaced on Wall Street. The S&P 500 index fell by 0.9%, which wiped out earlier modest gains for the week, marking one of the largest declines of the year thus far. Despite this drop, the index remained close to its all-time high set two weeks ago.

The Dow Jones Industrial Average experienced a sharper fall, dropping 444 points, or 1%. This decline was exacerbated by a steep decrease in Amazon's stock price following its recent earnings report, which contributed to a 1.4% loss for the Nasdaq composite.

In the bond market, Treasury yields rose after a disappointing report suggested that U.S. consumer sentiment is dimming. According to a preliminary report from the University of Michigan, consumers predict inflation to reach 4.3% over the next year, marking the highest forecast since 2023. This figure is a full percentage point higher than consumer expectations from the previous month, reflecting two consecutive months of considerable increases.

Economists have voiced concerns about the potential impact of tariffs on a variety of imported goods proposed by President Donald Trump, which could drive prices up for consumers. During a press conference, Trump stated that he was expected to announce decisions regarding 'reciprocal tariffs' shortly, where tariffs imposed by other countries would lead the U.S. to implement similar charges.

The mixed signals from the job market include a report showing that hiring last month was less than half of the rate seen in December. However, there were some positive signs: the unemployment rate decreased, and average wages saw greater increases than anticipated.

These combined economic indicators suggest that the Federal Reserve may be cautious in making further interest rate cuts. The Fed had started to lower its main interest rate in September to ease pressure on the economy but hinted at the end of the year that it might cut rates less frequently than previously thought due to persistent inflation concerns.

Interest rates are a critical factor for Wall Street, as lower rates typically lead to higher stock prices. However, they can also exacerbate inflation. Scott Wren, a senior global market strategist at Wells Fargo Investment Institute, noted that the jobs report did not alter his prediction of one federal funds rate cut in 2025. This view contrasts with many traders who estimate a 45% chance of at least two cuts.

Market instability may continue in the near term as traders grapple with uncertainties surrounding interest rates, tariffs, and other global economic factors. Earlier in the week, there had been some easing of fears regarding a potential global trade war after Trump delayed tariff implementation for Mexico and Canada.

As major U.S. companies report their profit results from 2024's final quarter, many are posting better-than-expected outcomes. However, this isn't always reflected positively in stock prices. Notably, Amazon exceeded analysts' earnings expectations for that quarter, yet its share price still declined by 4.1% as investors fixated on its disappointing revenue forecast.

Homebuilding stocks also faced declines amid fears that limited cuts to rates may result in sustained high mortgage rates. D.R. Horton dropped 5%, while Lennar fell 4.2%.

In contrast, Expedia Group saw an impressive gain, rising 17.3% after surpassing analysts' profit expectations for the same quarter. CEO Ariane Gorin attributed the strong travel demand in the latest quarter as a key factor in the company’s performance, along with the reinstatement of its dividend for shareholders—after it had been suspended during the pandemic-related downturn in travel.

Overall, the S&P 500 decreased by 57.58 points, closing at 6,025.99; the Dow Jones Industrial Average closed down by 444.23 points at 44,303.40; and the Nasdaq composite fell by 268.59 points to end at 19,523.40.

In the bond market, the yield on 10-year Treasuries increased to 4.48% from 4.44% late on Thursday, and the yield on two-year Treasuries rose even more dramatically to 4.28% from 4.22%.

Economists express concern that if U.S. households expect high inflation in the future, they might start making purchases in anticipation of rising prices. This could lead to a cycle of increased inflation, prompting the Fed to maintain higher federal funds rates longer than expected.

Globally, stock indexes experienced moderate declines across Europe after displaying mixed performances in Asia.

Article contributed by a Business Writer.

stocks, inflation, trump