S&P 500 Sinks 2% As Economic Fears Spur Bond Rally: Markets Wrap

Stocks got hammered, bonds climbed and gold hit a record high, following signs of weakness in the main engine of the US economy and worries that inflation could gain further traction amid a trade war. (Michael Nagle/Bloomberg)

With just one more session left before the end of a quarter that's set to be the S&P 500's worst since 2022, the gauge fell 2%. Data showed a plunge in US consumer sentiment and a surge in long-term inflation expectations. That was after another report underscored tepid spending and a pick-up in prices ahead of next week's big US tariff rollout. A gauge of tech megacaps slumped 3.5%. The yield on 10-year Treasuries sank 10 basis points to 4.26%.

To Bret Kenwell at eToro, the biggest worry is that inflation will remain elevated amid a notable slowdown in the economy.

“And while that risk may not be the base case right now, any traction it gains could further weigh on investor sentiment,” he said. “But unless there's a larger deterioration in the economy, it's too soon to jump on the stagflation train.”

The Nasdaq Composite Index lost 2.7%, notching a drop of at least 2% in March for the fifth time — the most for a single month since the bear market in June 2022, according to Bespoke Investment Group. The Dow Jones Industrial Average slipped 1.7%. All megacaps sank, with Amazon.com Inc. and Alphabet Inc. sinking over 4%. Lululemon Athletica Inc. tumbled 14% on a gloomy outlook.

Wall Street's “fear gauge” - the VIX - topped 21. The dollar fell 0.1%. Bitcoin tumbled about 4%.

As President Donald Trump's tariff policy expands, consumers are growing more worried that the added duties will drive up prices. A prolonged rise in costs could prompt households to cut back on discretionary spending, which has implications for broader economy — and Corporate America.

“Today's data has the general pattern of what many observers will be looking for in the months ahead as new tariffs and other policy change begin to bite: weaker-than-expected spending and stronger-than-expected inflation,” according to David Alcaly at Lazard Asset Management.

While it's premature to be drawing judgments, seeing this pattern in hard data could feed apprehension before next week's announcements, Alcaly added.

“When you don't know what's coming, it's harder to plan,” said Jim Baird at Plante Moran Financial Advisors. “In the face of growing uncertainty, consumers are left with tough decisions. For now, inflation has re-emerged as a significant – and growing – concern.”

Economists dialed back their expectations for US growth this year, envisioning softer consumer spending and more limited capital investment amid mounting uncertainty created by the ever-evolving trade policy, according to the latest Bloomberg survey of economists.

US stock funds suffered their largest weekly outflow this year, while inflows continued to pour into European equities, Bank of America Corp. said, citing EPFR Global data.

“Looking ahead, the market's recovery is expected to be turbulent, with volatility persisting until policy uncertainty clears,” said Mark Hackett at Nationwide. “However, April has historically provided a seasonal tailwind – whether that holds true this year remains to be seen given the current environment.”

Hackett noted that investor sentiment has reached extreme levels, which often serves as a contrarian signal. Historically, when sentiment has been this stretched, the S&P 500 has posted strong gains over the following six and 12 months, he said.

“All in all, investors should stay patient for now,” Hackett concluded.

UBS Global Wealth Management's David Lefkowitz lowered his S&P 500 year-end target to 6,400 from 6,600 to account for recent economic turbulence, but he sees stocks reversing course and rising into the end of 2025.

“We still believe that US stocks can recover and post gains for the year,” he said in a Friday note to clients.