US stock markets experienced significant declines on Friday, with the Dow Jones Industrial Average (Dow) suffering its worst daily performance in a month, dropping over 400 points. This downturn was largely attributed to investor concerns over President Trump’s announcement of potential new tariffs on imports and rising inflation expectations. The S&P 500 and the tech-heavy Nasdaq Composite also saw considerable losses, closing down nearly 1% and 1.4% respectively, marking their second consecutive week of decline.
President Trump’s remarks during a meeting with Japanese Prime Minister Shinzo Abe fueled market anxieties. He indicated plans to unveil reciprocal tariffs on American imports and suggested that tariffs on Japan were also a possibility. These statements exacerbated existing worries about escalating trade tensions and their potential negative impact on global economic growth.
Consumer sentiment plummeted to a seven-month low in early February, falling short of expectations. Inflation expectations surged to their highest level since November 2023, driven by concerns surrounding the threatened tariffs. This rise in inflation expectations contributed to the negative market sentiment, as investors grappled with the potential for higher prices and reduced consumer spending.
The University of Michigan’s consumer survey revealed that Americans now anticipate a 4.3% inflation rate over the next year, a full percentage point increase from the previous month. This heightened inflation expectation further contributed to market unease. In response to the inflation data and the monthly jobs report, the 10-year Treasury yield climbed to a session high of 4.5%.
While the January jobs report indicated the addition of 143,000 jobs, missing economist forecasts, it still suggested a resilient labor market. The unemployment rate dipped to 4.0% from December’s 4.1%. However, the positive aspects of the jobs report were overshadowed by the prevailing concerns about tariffs and inflation.
Adding to the market downturn, Amazon’s stock price tumbled 4% after the e-commerce giant, along with Google and other major tech companies focused on artificial intelligence, issued disappointing revenue outlooks. This fueled broader concerns about the performance of the tech sector and its impact on overall market performance. The confluence of negative news, including tariff threats, rising inflation expectations, and disappointing corporate earnings, created a perfect storm for the markets, leading to the substantial decline in the Dow and other major indices.
