Stock Market Stumbles Amid Inflation Concerns and Economic Uncertainty
Wall Street Ends the Week Lower Stocks limped into the weekend as economic data fueled concerns over sluggish growth and persistent inflation. After hitting an all-time high on Wednesday, the S&P 500 (^GSPC) ended the week down 1.7%, dragged down by a disappointing outlook from Walmart (WMT) and renewed inflation worries. Meanwhile, the Nasdaq Composite (^IXIC) shed 2%, while the Dow Jones Industrial Average (^DJI) led losses, tumbling nearly 3%.
Looking ahead, Nvidia’s (NVDA) highly anticipated earnings report on Wednesday will take center stage, along with key reports from Home Depot (HD), Lowe’s (LOW), and Salesforce (CRM).
Key Economic Data to Watch Investors will closely monitor the Federal Reserve’s preferred inflation gauge, the “core” Personal Consumption Expenditures (PCE) index, set for release on Friday. Other critical updates include a second estimate of Q4 gross domestic product (GDP), consumer confidence readings, and housing price data.
With inflation still above the Fed’s target and a resilient labor market, Wall Street increasingly believes interest rate cuts may not come in the first half of 2025. January’s PCE report is expected to show core PCE inflation at 2.6% year-over-year, slightly down from 2.7% in December, while month-over-month growth is projected at 0.3%.
Morgan Stanley’s chief U.S. economist Michael Gapen noted that a 2.6% rise in core PCE “implies a meaningful step down in the 12-month pace of core inflation” and supports their forecast of a potential rate cut in June.
Nvidia’s Earnings in Focus Nvidia, the AI sector’s bellwether, is set to report earnings on Wednesday. Analysts expect the company to post adjusted earnings per share of $0.84, a 63% year-over-year increase, with revenue projected to hit $38.26 billion, up 73% from the previous year.
Investors are eager to hear CEO Jensen Huang’s comments on AI chip demand and potential competition from China’s DeepSeek. Nvidia’s stock, along with other “Magnificent Seven” tech stocks, has underperformed the S&P 500 in 2024, reducing their influence on the index compared to previous years.
Bank of America analyst Vivek Arya expects Nvidia’s stock to remain volatile but believes momentum will return as investors anticipate new product launches, including the GB300 and Rubin AI chips, and expanded markets in robotics and quantum computing.
Investor Sentiment Deteriorates Despite stocks showing resilience to policy shifts under President Donald Trump, concerns have begun surfacing in key economic surveys. On Friday, the University of Michigan’s consumer sentiment index fell to its lowest level since November 2023, while the S&P Global flash U.S. composite PMI dropped to a 17-month low.
Tariffs and their inflationary impact were primary concerns. “The upbeat mood seen among U.S. businesses at the start of the year has evaporated, replaced with a darkening picture of heightened uncertainty, stalling business activity, and rising prices,” said S&P Global Market Intelligence chief economist Chris Williamson. He noted that optimism about the economy had plunged to “one of the gloomiest levels since the pandemic.”
Stocks tumbled on Friday, with the S&P 500 and Dow both falling over 1.7%, while the Nasdaq dropped more than 2%. While one day of losses doesn’t signify a major shift, it highlights growing investor anxiety.
Market Outlook for 2025 Citi U.S. equity strategist Scott Chronert cautioned that stock valuations near record highs could make for a bumpy ride in 2025. “Our view is that there’s still upside to the S&P between now and year-end,” Chronert told Yahoo Finance. “But between here and there, we expect ongoing volatility and concerns that will lead to pullbacks and better buying opportunities.”
With inflation, interest rates, and geopolitical factors in play, investors should brace for a choppy market as they navigate the path ahead.