U.S. stocks sold heavily on Monday, with the major index recording the sharpest decline of the year amid growth in indications that the economy could be more vulnerable than previously believed.
The S&P 500 fell 2.69%, reducing its worst days in months, but Nasdaq's composites plummeted 4.00% due to a sudden loss in technology stock. The Dow Jones industrial average fell 890 points (2.08%), while the Russell 2000, which tracks small caps, fell 2.38%, indicating weakness across the market.
The bond market reflects the growing attention of investors, with US Treasury yields falling as traders moved to safer assets. The 2010 Treasury yield slipped to 4.226% from 9.19 basis points, while the 2nd year yield fell 9.8 basis points to 3.904%, indicating hopes for slow economic growth. The basic points are 1/100th of the percentage points. Bond yields drop when bond prices rise.
Over the weekend, President Donald Trump appears to acknowledge the possibility of a slowdown, and told Fox News there is a “transition period” as his administration implements major policy changes. Meanwhile, Commerce Secretary Howard Lutnick pushed back concerns about the recession by saying on NBC News that “there will not be a recession in America.”
“The markets and the economy are engrossed, addicted, government overexpenditures, and there's a period of detoxification,” Treasury Secretary Scott Bescent said in an interview. It is widely interpreted as an indication that economic pain and financial markets are willing to decline as the administration reforms America's economic and trade policies.
Some analysts have condemned policy uncertainty or the stock recession in relation to the Trump administration's tariff plans, but few sales were made on Monday to show that as a major factor. In fact, the Information Technology sector, which is likely to be barely affected by trade policy, showed a decline, down 4.34%. Communication services also fell by 3.54%, down by large internet and media companies.
Consumer discretionary stocks fell 3.90% due to concerns about ease of consumer spending. Finance fell 2.29%, reflecting concerns about credit conditions and tightening fears of recession.
Sectors that trade more economically and policy-sensitive sectors such as industry (-1.60 per cent) and materials (-2.12 per cent) have reduced losses.
Utilities (+1.04%) and energy (+0.94%) recorded small profits. These sectors are often better during times of market stress as investors seek stability. Consumer staples (-0.69%) and healthcare (-1.10%) also outperformed the broader market.
Stocks have been volatile in recent weeks, but Monday's decline suggests investors are reassessing the strength of the economy. Employment is softening, consumer sentiment shows signs of distortion, and inflation remains persistent.
The Atlanta Federal Government's economy GDPNOW Barometer says economic data for the first quarter of this year currently suggests a negative 2.4% growth rate. However, most economists hope that more data will increase estimates of GDP growth into positive regions in the coming weeks.
Friday's employment report showed that the labor market remains stable, but there are signs of cooling at the margins. Wage growth has slowed, and labor participation has not recovered as strongly as expected. These factors contribute to a more cautious outlook on corporate revenue and economic activity over the coming months.
At the same time, consumer spending (the backbone of the US economy) began to show a rift after becoming stronger than expected in the second half of 2024. Borrowing costs and sustained inflation seem to have led many households back, raising concerns about the economic momentum heading into the second quarter.
Federal Reserve policy remains an important variable. The futures market has been excluded from four-person pricing, excluding two or more cuts by the end of this year. This shows that traders believe they could be weak enough to pull the central bank from their current “pause” stance.
