Sticky Inflation Weighs On Markets — SPY, QQQ, Tech Stocks Take A Hit

Wall Street stumbled Friday as investors hustled to reevaluate their expectations with a hotter-than-anticipated inflation report and growing worries about imminent trade tariffs. ETFs tracking the broad indexes S&P500 and Nasdaq 100, like SPDR S&P 500 ETF Trust SPY, The iShares Core S&P 500 ETF IVV and the Invesco QQQ Trust QQQ, suffered losses as traders processed the most recent inflation reading and an alarming consumer sentiment report.

Inflation Halts Advancements Toward Rate Reduction

The Fed’s favored measure of inflation, the Personal Consumption Expenditures (PCE) price gauge, rose 2.5% from the prior year, as expected. Yet the core PCE that is watched most closely, adjusting for fidgety food and energy prices, gained 2.8%, beating expectations of 2.7% and its hottest level in more than a year.

LPL Financial chief economist Jeffrey Roach added that the increase in the core PCE print highlights lingering inflationary pressure. He cited the rising savings rate, which hit 4.6%, as a sign that consumers are increasingly conservative about the outlook of the economy.

Comerica Bank’s chief economist, Bill Adams, seconded these fears, calling for a deceleration in consumer spending to weigh on real GDP growth in the first quarter of 2025.

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Market Sell-Off: SPY, IVV And QQQ Take The Brunt

The latest inflation figures fueled a widespread sell-off on Wall Street on Friday, as all three major indexes lost heavily. S&P 500 lost 2%, with the Nasdaq 100 losing 2.6%. Consequently, the SPY, an ETF that follows the S&P 500, lost 2%, with QQQ, which follows the tech-heavy Nasdaq 100, losing 2.6% on Friday. IVV, another major ETF tracking the S&P 500, also slumped 2%.

Tech stocks were hammered, with all of the Magnificent Seven trading in the red. Amazon.com Inc. AMZN and Alphabet Inc. GOOGL led the decline, dropping 4.3% and 4.9%, respectively. Tesla Inc. TSLA, one of the highest holdings in SPY, wiped out its previous day’s gain, falling 3.4%.

Outlook: Volatility On The Horizon For SPY And QQQ

As inflation remained stickier than expected and the Federal Reserve increasingly under pressure to maintain higher rates, volatility in SPY and QQQ can be expected to continue. The slowdown in consumer spending, coupled with higher inflation and trade uncertainties, has created a vulnerable setup for the equity markets.

Though steady real disposable income growth could be a short-term buffer, as analyst Roach cautioned, any deceleration in pay growth would present an even bigger threat to the overall economy. Investors now look to the Federal Reserve’s next steps and the next steps in tariffs for more guidance in this uncharted economic climate.

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