Dow tumbles nearly 400 points as new inflation fears dent hopes of Fed rate cut

Wall Street stocks closed lower on Thursday as markets were stunned by data showing slower-than-expected US economic growth and persistent inflation, coupled with a sell-off in large cap stocks triggered by disappointing results from Meta Platforms.

The Dow Jones Industrial Average slid 375.12 points, or 1%, to 38,085.12 It had tumbled nearly 700 points in morning trading.

The S&P 500 and Nasdaq dropped 0.5% and 0.6%, respectively.

Data on Thursday showed that the US economy grew at its slowest pace in nearly two years in the first quarter while inflation accelerated, dampening hopes that the Federal Reserve would begin cutting interest rates this year.

Meta plunged 11% after the Facebook-parent forecast higher expenses and lighter-than-expected revenue.

Other growth stocks also came under pressure, with Alphabet, Amazon and Microsoft finishing lower

“The GDP numbers definitely puts a ding in the paradigm that markets were hanging onto for equities in terms of high growth; and if you don’t have high growth that will translate to lower-than-expected earnings,” said James St. Aubin, chief investment officer at Sierra Mutual Funds in California.

Separately, the number of Americans filing new claims for unemployment benefits unexpectedly fell last week, pointing to still tight labor market conditions.

“The double whammy was also the inflation number that came in stronger than expected so there wasn’t really a silver lining in that report; it’s still positive in absolute terms but relative to high expectations it was disappointing,” St. Aubin added.

The data comes in ahead of the Personal Consumption expenditures (PCE) index, the Fed’s preferred inflation gauge, on Friday.

Money markets are pricing in just about 36 basis points of rate cuts from the Fed this year, down from about 150 bps seen at the start of the year, according to LSEG data.

Downbeat results from other companies also weighed on equities.

International Business Machines dropped 8.3% after the firm said it will buy HashiCorp in a deal valued at $6.4 billion, and as its first-quarter revenue missed estimates.

Southwest Airlines slid 7% after slashing its estimates for new aircraft deliveries from Boeing in 2024 for the third time, saying it plans to undertake cost-cutting measures to ease the resultant blow.

Caterpillar lost 7% after the company said it expects sales to fall in the second quarter as demand for its construction equipment eases from last year’s boom.

On the bright side, Newmont gained 12% after the world’s largest gold miner beat Wall Street estimates for first-quarter profit.