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“Stagflation” was the term used the day after the first quarter gross domestic product was shockingly disappointing (GDP) After reading this article, some on Wall Street are bracing for a possible stock market crash.
The U.S. economy grew at an annualized rate of 1.6% in the first quarter, according to the latest GDP estimates from the U.S. Bureau of Economic Analysis. This is not only less than half the growth rate of 3.4% in the fourth quarter of last year, but also the lowest economic growth rate since 2022. This suggests a significant slowdown in production in the first quarter of this year.
“This report throws cold water on the misleading narrative that the economy is reaccelerating,” said Gregory Daco, chief economist at EY.
Consumer spending retreated significantly in the first quarter, slowing to 2.5% on an annualized basis from 3.3% in the fourth quarter. The Fed’s monetary policy contraction, perhaps combined with stubborn inflationary pressures, could begin to squeeze previously resilient consumers and reverse the economy’s expansionary trajectory.
“This report was the worst in terms of slowing economic growth and continuing inflationary pressures,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance. “The Fed wants inflation to start falling sustainably, but the market wants economic growth and corporate profits to rise. So if neither is going in the right direction, that’s bad news for the market. It will be.”
Concerns about stock market crash amidst rumors of stagflation
Inflation is also moving in the wrong direction, according to the March Consumer Price Index (consumer price index), some on Wall Street believe the country may be heading toward the dreaded stagflation. This includes macroeconomist Craig Shapiro.
“GDP and consumer spending were weaker than expected, but the core PCE index was higher than expected and labor numbers were good. For those begging for the Fed to kick in, this is a stagflation mess,” Shapiro he said. Benzinga.
Stagflation refers to an economic condition characterized by high inflation, high unemployment, and low economic growth. This is a worst-case scenario for the economy, and fortunately the United States only experienced it in the 1970s.
Although it seems too early to make final judgments on stagflation, worrying GDP and inflation statistics have significantly increased the likelihood of stagflation.
What does today’s GDP report mean for stocks?
Today’s GDP report also puts further pressure on stocks, especially ahead of tomorrow’s important consumer spending (PCE) Inflation Report.
As expected, Wall Street reacted poorly to the GDP data, with stock indexes across the board closing in the red.
Dow Jones Industrial Average Especially after the release of the GDP report, the index fell by 1.7%, marking its biggest decline this year. Fortunately, industrial indices recovered some of their losses later in the day. In the end, the stock fell by 0.98% on that day.
“Slowing inflation is a top priority for the Fed, and discussions of cutting rates (or even raising them) are intensifying, which has led to significant uncertainty in bond and stock markets recently, which could lead to tomorrow’s PCE data. I’m paying attention,” Zaccarelli wrote.
On the date of publication, Shree Dua did not have (directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer and are subject to InvestorPlace.com Publishing Guidelines..
