MW Dow wipes out its gains since Trump's inauguration as 'stagflation' fears return

By William Watts

U.S. stocks ended the week on an ugly note Friday, posting their worst day of 2025 - and a run of soft economic data was getting much of the blame.

The Dow Jones Industrial Average DJIA dropped 748.63 points, or 1.7%, for its lowest close since Jan. 16, which was two trading sessions before President Donald Trump's inauguration on Jan. 20. The S&P 500 SPX also shed 1.7% - marking the biggest one-day percentage fall for both indexes since Dec. 18, according to Dow Jones Market Data. The tech-heavy Nasdaq Composite COMP lost 2.2%.

The small-cap Russell 2000 RUT took it especially hard, tumbling 2.9% - also its worst day since Dec. 18.

"Markets have a way of ignoring problems until they become unavoidable, and right now, stagflation risks - once dismissed as a relic of the 1970s - are creeping back into the conversation," said Stephen Innes, managing director at SPI Asset Management, in a note.

Stagflation refers to a combination of inflation and stagnant economic growth - a particularly pernicious combination.

Innes cited a combination of economic readings that delivered a "gut punch" to investor appetite for risky assets this week, including Friday's University of Michigan consumer-sentiment reading, which fell to its lowest since November 2023.

Also Friday, the S&P Global U.S. services purchasing managers' index fell to 49.7 - a 25-month low and below the 50 threshold, marking a contraction in activity. The University of Michigan data also showed a rise in inflation expectations, while, separately, January existing-home sales fell.

Concerns have also swirled around the health of the labor market. Torsten Slock, chief economist at Apollo Global Management, said this week that a top question from clients was whether the Trump administration's sweeping federal layoffs could push the U.S. economy into recession.

Friday's loss followed a Thursday session that saw stocks pull back following disappointing guidance from retail behemoth Walmart Inc. $(WMT)$, which appeared to stir worries over the health of the American consumer.

"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, president of Bolvin Wealth Management Group, in emailed comments.

The drop left the S&P 500 down 2.1% from its record close set on Tuesday.

"However, there's still a strong foundation in place for the bull market to continue," Bolvin wrote. "Earnings growth is up 15%, and while the Fed may be on a pause, their next move is [an interest-rate] cut."

-William Watts

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February 21, 2025 18:23 ET (23:23 GMT)

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