Washington D.C., USA – The latest U.S. GDP report has left investors concerned, with one investor describing it as the “worst of both worlds.” Chris Zaccarelli, investment chief at Independent Advisor Alliance, highlighted the slowdown in economic growth coupled with persistent inflationary pressures as a worrying combination. The Federal Reserve is looking for inflation to decrease steadily, while the market is eager to see growth in economic and corporate profits. If both factors continue in their current directions, it could spell trouble for the markets.
The disappointing GDP print has triggered a sell-off in equities, with the Dow Jones Industrial Average dropping 500 points, the S&P 500 falling 1.4%, and the Nasdaq Composite down 2.3%. The data has raised anticipation for the upcoming release of the personal consumption expenditures report, the Fed’s preferred measure of inflation. Investors are hoping for an improvement in pricing pressures following hotter-than-expected consumer inflation data in March.
Meanwhile, the rise in the 10-year Treasury yield to its highest level since November has raised questions about the Federal Reserve’s future monetary policy decisions. While slowing economic growth could push the Fed towards rate cuts, the inflationary pressures shown in the GDP report might prompt the central bank to hold rates steady until inflation eases.
In a separate development, Caterpillar stock saw a decline in early trading after reporting lower-than-expected sales for the first quarter. The construction equipment company attributed the sales decline to lower equipment sales to end users. On the positive side, Honeywell posted strong earnings results, beating analyst estimates for both earnings per share and revenue. The industrial firm’s stock rose by 1.8% in premarket trading.
In the airline sector, Southwest and American Airlines saw divergent reactions from investors following their first-quarter earnings reports. Southwest plummeted over 7% after missing Wall Street’s expectations, while American Airlines added over 4% despite also falling short of analysts’ forecasts. American Airlines provided stronger-than-anticipated guidance for the current quarter, which seemed to reassure investors.
Moreover, Merck saw its stock climb nearly 2% as first-quarter earnings outperformed expectations. The pharmaceutical company reported adjusted earnings per share of $2.07 on $15.78 billion in revenue, driven by strong sales of vaccination products and its Keytruda cancer drug. The positive earnings results have contributed to Merck’s stock jumping more than 16% in 2024.
Overall, the current market environment is reflecting a mix of positive and negative indicators, with investors closely watching economic data and corporate earnings for signals on the future direction of the markets.