U.S. Stocks Plunge 2% as GDP Shrinks 0.3% and Inflation Hits 3.5%

Early in the U.S. trading day, markets experienced a significant shift from optimism to pessimism due to the release of economic data that heightened concerns about stagflation. The ADP jobs report for April revealed a mere 62,000 private sector jobs created, falling far short of the estimated 108,000 and marking the lowest figure since July 2024. This disappointing jobs report was followed by the government's first estimate of first-quarter GDP growth, which came in at a negative 0.3%, contrary to expectations of a positive 0.2%. The decline in GDP was largely attributed to an increase in imports, which, without a corresponding rise in exports, acted as a drag on economic growth. Additionally, government spending, influenced by the Trump administration's efforts, also contributed to the GDP slowdown for the first time since 2022.

Inflation concerns were further exacerbated by the Core PCE price index, which rose by 3.5%, surpassing the estimated 3.1% increase. This combination of weak job growth, negative GDP growth, and rising inflation has led to a significant drop in U.S. stocks, with the Nasdaq falling by 2% and the S&P 500 by 1.5%. Bitcoin, which had been trading at around $94,300, also experienced a decline of approximately 1%. The overall market sentiment has turned bearish as investors grapple with the implications of these stagflationary indicators.