New York — Wall Street experienced a turbulent day on Wednesday, marked by sharp early drops that turned into a surprising recovery, as U.S. stocks rebounded significantly. This volatility reflected ongoing concerns regarding the impact of President Donald Trump’s trade policies on the economy. By the end of the trading session, the S&P 500 gained 0.1%, marking its seventh consecutive day of growth. The Dow Jones Industrial Average climbed by 141 points, or 0.3%, while the Nasdaq composite experienced a slight decline of 0.1%.
Initially, the market faced steep losses, with the S&P 500 dropping as much as 2.3% and the Dow facing a decline of 780 points in early trading. This downturn was sparked by a report suggesting a contraction in the U.S. economy at the year’s onset, a striking shift from the solid growth recorded at the end of the previous year. Many importers sought to stockpile goods ahead of anticipated tariff hikes, leading to a temporary dip in the nation’s Gross Domestic Product.
This economic data raised alarms about a potential scenario known as “stagflation,” where economic stagnation coincides with persistent inflation. Economists are particularly apprehensive about this possibility, as the Federal Reserve lacks effective tools to alleviate both issues simultaneously. Adjusting interest rates to combat one could exacerbate the other.
Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management, described the weak GDP reading as a “stagflation warning shot,” indicating the fragility of the economic landscape. However, a more positive development emerged later in the day, with inflation figures showing a decrease in March. The inflation measure favored by the Federal Reserve slowed to 2.3%, inching closer to the target of 2%, down from 2.7% in February. Following the announcement, stock prices began to recover, suggesting optimism among investors.
If this trend of lower inflation continues, it may provide the Fed with more flexibility to lower interest rates, which could support economic growth. Market expectations are building for at least four rate cuts by the end of 2023, although analysts anticipate that the Fed will not commence adjustments at its upcoming meeting.
Further complicating the outlook, a labor market report from ADP indicated a significant slowdown in hiring outside the government sector for April, with new job additions falling well below forecasts. This data adds to concerns that the trade conflict initiated by Trump may push the economy toward a recession. The president’s inconsistent approach to tariffs has already introduced considerable uncertainty, which in itself can undermine market stability.
Trump remarked on social media that he would not take credit or blame for stock market movements, asserting that his administration inherited a complicated situation. The unpredictable nature of his tariff policies has caused significant fluctuations in financial markets, impacting stocks, bonds, and the dollar. April was particularly tumultuous, as the S&P 500 briefly dipped nearly 20% below its all-time high, raising fears of a historical downturn.
Despite these fluctuations, optimism around potential tariff relief helped the S&P 500 recover some of its losses. The index concluded April with a modest decline of just 0.8%, a significant improvement compared to the prior month’s drop. Strong earnings reports from prominent U.S. companies, including a notable 11.6% surge for Seagate Technology, have supported market resilience amidst uncertainty.
However, not all companies fared well. Super Micro Computer experienced an 11.5% decline due to concerns over delayed customer purchases, while Starbucks shares fell by 5.7% after the coffee giant missed analysts’ revenue projections despite reporting its first quarterly sales increase in over a year.
Overall, the S&P 500 rose 8.23 points to finish at 5,569.06. The Dow Jones climbed 141.74 points to reach 40,669.36, while the Nasdaq composite decreased by 14.98 points to settle at 17,446.34. Nonetheless, the S&P 500 recorded its third consecutive losing month, with energy stocks suffering the steeper declines, particularly Halliburton, which plummeted nearly 22% in April as crude oil prices fell on fears of global economic weakening.
In the bond market, Treasury yields decreased, reflecting rising expectations for interest rate cuts by the Fed. The yield on the 10-year Treasury note eased to 4.17%, down from 4.19% the previous day, enhancing stock prices as lower rates typically stimulate investment. Internationally, stock markets in Europe turned positive after mixed performances in Asia, highlighting the interconnected nature of global financial systems.