Stocks slumped on Friday, with the S&P 500 wiping out almost all of its gains since President Trump took office last month, after a widely watched measure of how consumers feel about the economy showed mounting fears over stubborn inflation.
The S&P 500 fell 1.7 percent, adding to a modest dip on Thursday and notching the worst week of Mr. Trump’s second term, which began five weeks ago. The index is now just 0.3 percent higher since Inauguration Day. Other stock indexes also fell, with the tech-heavy Nasdaq Composite dropping over 2 percent on Friday.
Fueling the decline was an unexpected drop in the University of Michigan’s consumer sentiment index, which slumped to its lowest level in more than a year in February. The index showed consumers more worried over the path ahead for the economy than economists had expected.
The survey showed consumers expecting that prices for goods and services would rise at an annual rate of 3.5 percent over the next five to 10 years, the most since 1995. Consumers are wary of spending on big-ticket items, and more than half of the survey respondents expect the unemployment rate to rise over the next year.
For investors, inflation expectations have taken on renewed importance as the Federal Reserve has signaled that it is unlikely to lower interest rates again unless inflation falls closer to its 2 percent target. The Fed’s preferred measure of inflation is currently just below 3 percent.
The Trump administration’s policy priorities, especially those targeting tariffs on U.S. trading partners and the deportation of immigrants, have raised concerns about reigniting inflation, leading to higher prices at the supermarket and higher interest rates on mortgages and other debt.
High interest rates tend to weigh on the stock market, while the prospect of faster inflation has raised fears about the ability for consumers to keep powering the domestic economy, as they have done since the coronavirus pandemic hit roughly five years ago. That could push the economy toward “stagflation,” the unpleasant double whammy of slowing economic growth and rising prices.
This week, the S&P 500 inched up to a record high. But instead of being the catalyst for a further stock rally, the market’s heights have been a persistent cause of consternation among investors. Many are unsure if companies can produce the results to justify such lofty valuations and prevent their stock prices sliding.
Investors had already been jittery this week because of worrying signs from corporate bellwethers like Walmart, which said in its latest earnings report that it expected slower growth amid the uncertainty around U.S. tariffs.
Some investors also noted that Friday’s large expiration of derivatives contracts tied to the stock market might have exacerbated the sell-off.
