(Bloomberg) — Stocks had their worst session so far in 2025 after weaker-than-expected economic data and a surge in consumers’ long-run inflation views to the highest since 1995.
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From consumer sentiment to housing and services, Friday’s readings unsettled investors at a time when the Federal Reserve is in no rush to cut rates. The S&P 500 lost over 1.5% and bonds rallied. A notional $2.7 trillion of options tied to equities and ETFs was set to expire. That usually amplifies price swings. Also contributing to the volatility was a rally in Covid-19 vaccine makers as traders shared earlier reports about a new coronavirus study in China.
To Keith Lerner at Truist Advisory Services, you put all those factors together when you have a stock market that’s so “richly valued”, and it’s enough for “a little bit of a shakeout.” At AlphaSimplex Group, Katy Kaminski says it just seems to be a “classic risk-off type of day.”
“Is this the start of the correction?” said Andrew Brenner at NatAlliance Securities, in a note titled “Weaker Economic Outlook Trumps Inflation Fears.” “Add in three people have sent us a new bat virus story. Does anyone want to go into the weekend short Treasuries?”
The S&P 500 fell 1.7%. The Nasdaq 100 slid 2.1%. The Dow Jones Industrial Average slipped 1.7%. Economically sensitive corners of the market like transportation companies and small caps got hardly hit. A gauge of the Magnificent Seven megacaps lost 2.5%.
A rally in Treasuries pushed the yield on 10-year notes lower for a sixth-straight week as traders sought safety. The benchmark yield fell eight basis points to 4.43% Friday. A dollar gauge rose 0.3%.
“Options expiration could be adding to some of the volatility from the weaker economic data,” said Larry Tentarelli at the Blue Chip Daily Trend Report. “We do not think that investors should overreact to one set of data points, especially with the S&P 500 just coming off of new highs this week.”
However, if we see a series of softer-than-forecast economic data points, that would raise more of a red flag, he added.
“With policy uncertainty and weaker retail sales guidance yesterday from consumer spending bellwether Walmart, we may have the catalyst we need for a healthy correction,” said Gina Bolvin at Bolvin Wealth Management Group. “However, there’s still a strong foundation in place for the bull market to continue.”
Bolvin said earnings growth is up, and while the Fed may be on a pause, their next move is a cut.
“A cranky consumer may finally reign in spending, which will help ease inflation,” she said.
To Mark Hackett at Nationwide, equity markets remain in a period of consolidation following an impressive two-year run.
“There is an interesting shift in market leadership, which could propel markets forward, as the risk/reward dynamics in the international and value space catch the eye of investors,” Hackett said.
The majority of similar consolidation phases in US equities have ended with a continuation of the bull market, according to Ed Clissold and Thanh Nguyen at Ned Davis Research. The 1962 cyclical bear is the most notable exception.
In fact, the average pattern suggests additional consolidation before moving higher, they noted.
“Whether the last 2.5 months are a consolidation phase within an ongoing cyclical bull, or the start of a bear market, depends on inflation, earnings, and other factors,” they said. “Currently, they support the argument that it is a bull market until proven otherwise.”
Meantime, hedge funds have trimmed net positions on most of the the Magnificent Seven stocks, according to Goldman Sachs Group Inc. strategists.
“The latest filings show hedge funds becoming more selective within popular sectors and themes,” the team including Ben Snider and Jenny Ma wrote. Despite the trimming, six companies in the group of megacaps still rank among top positions for hedge funds, with the exception being Tesla Inc.
More broadly, short interest for the median S&P 500 stock has also increased to the highest level since 2020, now at 2% of market cap.
European equities attracted the biggest inflows since the war in Ukraine began three years ago, according to a note from Bank of America Corp., underpinned by once-strong optimism around peace negotiations.
About $4 billion flowed into regional funds in the week through Feb. 19, the most since February 2022, the note said citing EPFR Global data. It also marked a second consecutive week of inflows into Europe.
BofA strategist Michael Hartnett reiterated a preference for global stocks to US peers, saying markets such as Germany, China, Japan and South Korea are more attractive at a time when business activity is improving. Meanwhile, he warned American markets face a risk from an unexpected slowdown in economic growth.
Corporate Highlights:
The US Justice Department has been investigating UnitedHealth Group Inc.’s Medicare billing practices, a person familiar with the matter said.
Coinbase Global Inc. said the Securities and Exchange Commission has agreed to drop its lawsuit that accused the largest US cryptocurrency trading platform of running an illegal exchange. The agreement is pending commissioner approval.
President Donald Trump told a gathering of governors that Apple Inc. Chief Executive Officer Tim Cook plans to shift manufacturing from Mexico to the US, a move that the iPhone maker hasn’t publicly discussed.
B. Riley Financial Inc. jumped after the investment and brokerage firm said it has enough cash for the next 12 months, as it continues to navigate a slew of soured investments and cope with upcoming debt payments.
US prosecutors and regulators are investigating a $32 million deal between CrowdStrike Holdings Inc. and a technology distributor to provide cybersecurity tools to the Internal Revenue Service, according to two people familiar with the matter and a document seen by Bloomberg News.
Akamai Technologies Inc. tumbled after the infrastructure software company gave an outlook that was weaker than expected.
Block Inc. sank the most in almost five years after the digital-payments company posted fourth-quarter profit and revenue that fell short of analysts’ forecasts.
Booking Holdings Inc., the parent to travel brands such as Kayak and Priceline, delivered better-than-expected fourth-quarter results following a bustling holiday season.
Rivian Automotive Inc. tumbled after warning it’s poised for a first-ever decline in electric-vehicle deliveries in 2025, heralding a new challenge after the company achieved a long-held profitability goal.
Some of the main moves in markets:
Stocks
The S&P 500 fell 1.7% as of 4 p.m. New York time
The Nasdaq 100 fell 2.1%
The Dow Jones Industrial Average fell 1.7%
The MSCI World Index fell 1.3%
Dow Jones Transportation Average fell 2.6%
The Russell 2000 Index fell 2.9%
Bloomberg Magnificent 7 Total Return Index fell 2.5%
Currencies
The Bloomberg Dollar Spot Index rose 0.3%
The euro fell 0.4% to $1.0461
The British pound fell 0.3% to $1.2631
The Japanese yen rose 0.3% to 149.14 per dollar
Cryptocurrencies
Bitcoin fell 3.2% to $95,032.25
Ether fell 3.3% to $2,637.31
Bonds
The yield on 10-year Treasuries declined eight basis points to 4.43%
Germany’s 10-year yield declined six basis points to 2.47%
Britain’s 10-year yield declined four basis points to 4.57%
Commodities
West Texas Intermediate crude fell 3.1% to $70.25 a barrel
Spot gold fell 0.1% to $2,934.71 an ounce
–With assistance from Rheaa Rao, Sujata Rao, Macarena Muñoz, Anand Krishnamoorthy and Divya Patil.
