U.S. stocks slumped Friday amid worries about higher inflation and tariffs, while a closely watched report gave a mixed picture of the U.S. job market.
The S&P 500 was down almost 1%, and the Dow Jones Industrial Average fell more than 400 points, or almost 1%. A sharp drop for Amazon following its latest profit report helped drag the Nasdaq composite down about 1.4%.
Treasury yields also climbed in the bond market after a discouraging report on Friday morning suggested sentiment was unexpectedly souring among U.S. consumers. The preliminary report from the University of Michigan said U.S. consumers were expecting inflation in the year ahead to hit 4.3%, the highest such forecast since 2023.
That’s a full percentage point above what they were expecting a month earlier, and it’s the second straight increase of an unusual amount. Economists pointed to the possibility of U.S. tariffs on a wide range of imported products, which President Donald Trump has proposed, and which could ultimately push up prices for U.S. consumers.
Trump said Friday that he was likely to have an announcement on Monday or Tuesday on “reciprocal tariffs, where a country pays so much or charges us so much, and we do the same.”
Jobs report
The consumer-sentiment data followed a mixed report on the U.S. job market. It showed hiring last month was less than half of December’s rate, but it also included encouraging nuggets for workers: The unemployment rate eased, and workers saw bigger gains in average wages than economists expected.
All the data taken together could keep the Federal Reserve on hold when it comes to interest rates. The Fed began cutting its main interest rate in September in order to relax the pressure on the economy and job market, but it warned at the end of the year that it might cut fewer times in 2025 than it had expected, given worries about inflation staying stubbornly high.
Interest rates are one of the things Wall Street cares most about, because lower rates can lead to higher prices for stocks and other investments. The downside is they can also give inflation more fuel.
For Scott Wren, senior global market strategist at Wells Fargo Investment Institute, the jobs report did nothing to change his forecast for the Fed to cut the federal funds rate just once in 2025. That’s a touch more conservative than many traders on Wall Street, who collectively see a roughly 45% chance that the Fed will cut at least twice, according to data from CME Group. Of course, some traders are also betting on the possibility of zero cuts.
Wren said financial markets could stay shaky in the near term, not only because of uncertainty about interest rates but also because of Trump’s tariffs and other unknowns around the world.
Worries about a potentially punishing global trade war, which rocked markets earlier in the week, have eased a bit after Trump gave 30-day reprieves for tariffs on Mexico and Canada. But “Europe might be next, and even if the final outcome is benign, uncertainty could weigh on global investment,” Bank of America economists wrote in a BofA Global Research report.
A fear among economists is that when U.S. households expect inflation to be high in the future, they could begin buying things in advance and making other moves that can set off a self-fulfilling cycle that worsens inflation.
