Stocks tumbled on Friday following weaker-than-expected economic reports, signalling potential adverse effects of President Donald Trump’s policies on US business activity. The S&P 500 and Dow Jones Industrial Average both fell by 1.7%, their steepest one-day declines since December 18, 2023. Meanwhile, the Nasdaq composite dropped by 2.2%.
Business activity nears stall speed
A report from S&P Global revealed that US business activity has slowed significantly, with growth decelerating to a 17-month low. The services sector, in particular, experienced an unexpected contraction. Many businesses surveyed cited growing uncertainty regarding Trump’s policies, including potential new tariffs and domestic spending cuts, as key factors dampening optimism.
“Companies report widespread concerns about the impact of federal government policies, ranging from spending cuts to tariffs and geopolitical developments,” said Chris Williamson, chief business economist at S&P Global Market Intelligence. “Sales are reportedly being hit by uncertainty, and prices are rising amid tariff-related price hikes from suppliers.”
Inflation fears further pressured the market, as a University of Michigan survey found consumers bracing for higher costs due to possible tariffs. Since tariffs act as taxes on importers, major retailers such as Walmart often pass these costs onto consumers, driving up prices.
The tumble in business activity reported by S&P Global is the latest indication that businesses and consumers are growing increasingly anxious about the administration’s policies. While initial optimism followed Trump’s election, hopes for a business-friendly environment have been overshadowed by regulatory uncertainty, spending cuts, and trade concerns. Additionally, reports on consumer confidence and home sales showed weaker-than-expected results, further dampening economic outlooks.
Trump’s policy moves raise uncertainty
Trump’s administration recently imposed a 10% tariff on Chinese imports, with a 25% levy on Mexican and Canadian imports temporarily suspended until March. Additionally, tariffs on steel and aluminium have risen to 25%. Trump also hinted at imposing 25% tariffs on autos, semiconductors, and pharmaceutical imports.
Meanwhile, federal government spending reductions have resulted in thousands of job losses, particularly in scientific and environmental sectors, due to budget cuts from the newly formed Department of Government Efficiency (DOGE), led by billionaire Elon Musk. While lower rates can stimulate the economy, they may also drive inflation higher by encouraging spending. Following weaker-than-expected economic reports on Friday, Treasury yields dropped. The 10-year Treasury yield fell from 4.51% to 4.41%,
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