U.S. Stocks Plunge 2%+ Amid NVIDIA Warning, Fed Inflation Concerns

U.S. stocks experienced a significant decline on Wednesday, with the Dow Jones Industrial Average (DJIA) falling 699.57 points, or 1.73%, to close at 39,669.39. The Nasdaq Composite Index dropped 516.01 points, or 3.07%, to 16,307.16, while the S&P 500 Index decreased by 120.93 points, or 2.24%, to 5,275.70. The downturn was largely driven by a warning from NVIDIA, a leading chip manufacturer, which indicated that increased export restrictions on its H20 graphics processing units (GPUs) could slow its overall growth. NVIDIA's stock price fell by 6.9% following the announcement. The company revealed that the U.S. government had informed it that export licenses would be required for the H20 GPUs to certain countries and regions, a move that could significantly impact its revenue and supply chain.

NVIDIA's warning sent shockwaves through the tech sector, with other chip stocks such as AMD, Micron Technology, and ASML also experiencing declines. Major tech companies like Meta Platforms, Alphabet, and Tesla were not spared from the sell-off. The broader market was further pressured by comments from Federal Reserve Chairman Jerome Powell, who reiterated the central bank's focus on preventing tariff-driven price increases from becoming more persistent inflation. Powell emphasized the Fed's commitment to maintaining stable long-term inflation expectations and ensuring that temporary price increases do not morph into sustained inflationary pressures. He also noted the delicate balance the Fed must strike between promoting full employment and maintaining price stability, acknowledging the potential for economic weakness and inflation to conflict with these dual mandates.

Powell's remarks underscored the Fed's cautious approach to adjusting its benchmark policy rate, as officials await clearer signals on how the Trump administration's trade policies, particularly tariffs, will impact the U.S. economy. The Fed chairman acknowledged the possibility of a challenging scenario where the central bank's dual mandate goals might come into conflict, requiring a nuanced assessment of the economic conditions and the potential timelines for resolving these differences. Powell also highlighted the significant and potentially lasting impact of tariffs on inflation, warning that the current level of tariff increases is much higher than anticipated and could lead to more persistent inflationary effects.

Investors are grappling with heightened global trade tensions, as the U.S. has imposed significant tariffs on multiple countries, with a notable exception for China. The recent announcement by President Trump to temporarily exempt smart phones and computers from tariffs has added to the uncertainty, as it was described as a temporary measure with potential adjustments to tariff categories. The ongoing trade negotiations with Japan and the initiation of new trade investigations into semiconductors and pharmaceuticals further complicate the economic landscape. The U.S. has also launched investigations into the necessity of raising tariffs on critical minerals, signaling an expansion of its trade war into key sectors of the global economy.

Since the Trump administration's initial announcement of "reciprocal" tariffs on April 2, major U.S. stock indices have declined by more than 4%. The economic uncertainty and potential for further market volatility have led to a cautious outlook among investors. The World Trade Organization (WTO) has warned that the uncertainty surrounding tariffs has significantly worsened the global trade outlook, with a particular impact on North American trade volumes. The WTO has downgraded its 2025 trade growth forecast, citing the potential for a severe decline in global goods trade due to the U.S. tariff measures and their spillover effects. The organization predicts that if the U.S. fully reinstates tariffs, it could result in a 1.5% decline in global goods trade, the largest drop since the peak of the COVID-19 pandemic.

Despite the challenging environment, U.S. retail sales showed a notable increase in March, driven by a surge in automobile purchases as consumers rushed to buy before potential punitive tariffs took effect. The U.S. Department of Commerce reported that retail sales, excluding inflation adjustments, rose by 1.4%, the largest increase in over two years. Excluding automobiles, retail sales grew by 0.5%. This data suggests that consumer spending remains robust, even as trade tensions and economic uncertainties persist. The focus now shifts to how policymakers and businesses will navigate these challenges, with the potential for further market adjustments as the situation evolves.