Stock market today: Wall Street collapses after discouraging economic data, while Meta sinks

NEW YORK (AP) U.S. stocks fall Thursday after a discouraging cocktail of data suggest both that growth in the economy is slowing and that inflation remains stubbornly high. A sharp decline in Meta Platforms, one of Wall Street's most influential stocks, also dragged the market lower.

The S&P 500 was down 1.3% at midday, erasing most of what had been a very winning week so far. The Dow Jones Industrial Average was down 603 points, or 1.6%, as of 11:25 a.m. Eastern Time, and the Nasdaq Composite Index was down 1.7%.

Metaplatforms, the parent company of Facebook and Instagram, fell 13.4% even though it announced a profit for the last quarter better than expected by analysts. Investors instead focused on the big investments in artificial intelligence that Meta had committed to making. AI has created a frenzy on Wall Streetbut Meta increases spending by also giving a forecast range for future revenue whose midpoint fell below analyst expectations.

Expectations were very high for Meta, as well as other Magnificent Seven actions that generated most of the stock market returns Last year. They need to set a high bar to justify their high stock prices.

The entire US stock market felt the pressure of a further rise in Treasury yields following disappointing data on the US economy. The report directly attacks one of the key beliefs that has propelled the S&P 500 to multiple records this year: that the economy can avoid a deep recession and sustain strong corporate profits, even if high inflation challenges time to be completely mastered.

This is what Wall Street calls a soft landing scenario, and expectations have been rising recently even for a soft landing, where the economy avoids a recession altogether.

But Thursday's report suggests that growth in the U.S. economy slowed in the first three months of 2024, to an annual rate of 1.6%, compared to 3.4% at the end of 2023.

This was weaker than expected and would have been disappointing in itself. Even worse for financial markets, the report also said inflation was higher over the three months than economists expected. That could tie the hands of the Federal Reserve, which normally stimulates sluggish economies by cutting interest rates.

Thursday's economic data will likely be revised several times as the U.S. government refines the numbers. But the weaker-than-expected growth and higher-than-expected inflation are a bit of a slap in the face to those hoping for a no-landing scenario, said Brian Jacobsen, chief economist at Annex Wealth Management.

Things can change a lot from quarter to quarter, so it's too early to say the Fed has failed, but that doesn't help their cause.

Treasury yields climbed immediately after the economic reports were released as traders reduced their bets that the Federal Reserve will cut rates this year.

The yield on the 10-year Treasury note jumped to 4.70%, up from 4.66% just before the report was released and up from 4.65% late Wednesday. The two-year Treasury yield, which more closely follows the Fed's expectations, returned to the 5% limit, compared to 4.93% on Wednesday evening.

Traders are now largely betting on the possibility of one or perhaps two interest rate cuts by the Fed this year, if at all, according to CME Group data. They entered the year making predictions six or more after a notable slowdown in inflation until the end of 2023. chain of reports this year showing inflation staying warmer than expected dashed those expectations.

Senior Fed officials themselves said recently that they could keep interest rates high for some time before being fully convinced that inflation is heading towards its target. The Fed has kept its main interest rate at the highest level since 2001. High interest rates slow the overall economy and hurt investment prices.

As interest rates look set to remain high for some time, companies are under increased pressure to deliver higher profits.

Southwest Airlines fell 8.8% after the carrier announced First quarter results worse than analysts expected. CEO Robert Jordan said the airline was moving quickly to address our financial underperformance and deal with delivery delays of Boeing's new planes. It will limit hiring, offer voluntary leave to employees and stop serving four airports.

Textron fell 10.9% after the maker of Bell helicopters and Cessna planes reported lower-than-expected profits and revenue. Caterpillar fell 6.7% despite a higher-than-expected profit. Its revenue for the last quarter did not meet analysts' expectations.

IBM fell 8.9% even though it also reported higher-than-expected profit. Its revenue also fell short of analyst forecasts, as it announced the purchase of HashiCorp in a deal valuing the multi-cloud infrastructure automation company at $6.4 billion.

Carrier Global was one of the few stocks to rise. It jumped 6.7% after reporting higher-than-expected profits after generating more operating profit for every dollar of revenue. Only one in five stocks in the S&P 500 were up.

In overseas stock markets, Japan's Nikkei 225 index slipped 2.2% as investors wait to hear whether the Bank of Japan will take steps to support the falling yen.

Indices were mixed elsewhere in Asia and Europe.

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AP Business writers Yuri Kageyama and Matt Ott contributed.