The S&P 500 Drops 2% as Bond Prices Rise on Economic Fears

Stocks tumbled, bonds rallied, and gold surged to a record high as concerns over a slowing U.S. economy and rising inflation—fueled by trade tensions—spooked investors.

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With just one trading session left in a quarter that’s shaping up to be the S&P 500’s worst since 2022, the index fell 2%. Economic data showed a sharp drop in U.S. consumer sentiment and a surge in long-term inflation expectations. Meanwhile, another report highlighted weak consumer spending alongside rising prices ahead of the upcoming tariff rollout. Tech stocks were hit hard, with a gauge of megacap companies sinking 3.5%. The 10-year Treasury yield dropped 10 basis points to 4.26%.

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“There’s a real risk that inflation gains traction, which could further dampen investor sentiment,” said one strategist. “While it’s not the base-case scenario just yet, it’s something to watch. However, unless we see a more significant downturn in the economy, it’s too soon to assume we’re heading toward stagflation.”

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The Nasdaq Composite plunged 2.7%, marking its fifth decline of at least 2% this month—the most in a single month since the June 2022 bear market, according to Bespoke Investment Group. The Dow Jones Industrial Average also slipped 1.7%. Tech giants were among the biggest losers, with Amazon.com Inc. and Alphabet Inc. both falling more than 4%. Meanwhile, Lululemon Athletica Inc. plummeted 14% following a disappointing earnings outlook.

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The market’s so-called "fear gauge," the Cboe Volatility Index (VIX), surged past 21, reflecting heightened investor anxiety. The U.S. dollar edged down 0.1%, while Bitcoin slumped around 4%.

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As President Donald Trump’s trade policies continue to unfold, consumers are becoming increasingly worried about the impact of tariffs on prices. A prolonged rise in costs could lead households to curb discretionary spending, which could ripple through the broader economy and affect corporate earnings.

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“The economic data today fits a pattern that many analysts expect to see in the coming months: weaker-than-expected consumer spending paired with stronger-than anticipated inflation as new tariffs and policy shifts take hold,” said David Alcaly of Lazard Asset Management.

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While it’s too early to draw firm conclusions, seeing these trends emerge in the data could stoke further unease ahead of next week’s key announcements, Alcaly noted.

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“When uncertainty looms, planning becomes much harder,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors. “Faced with growing unpredictability, consumers have tough choices to make. Right now, inflation has re-emerged as a primary—and increasing—concern.”

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As a result, economists have scaled back their growth projections for the U.S. this year. They now expect softer consumer spending and reduced business investment due to ongoing trade policy shifts, according to Bloomberg’s latest survey of economists.

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Meanwhile, investors pulled more money from U.S. stock funds last week than at any other point this year, marking the biggest weekly outflow so far. In contrast, European equities saw continued inflows, Bank of America Corp. reported, citing EPFR Global data.

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Looking ahead, the market’s recovery could be bumpy, with volatility likely to persist until there’s more clarity on economic and trade policy. “April has historically provided a seasonal boost for stocks,” said Mark Hackett, chief of investment research at Nationwide. “Whether that holds true this year remains to be seen given the current environment.”

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Hackett pointed out that investor sentiment has reached extreme levels, a situation that has historically signaled a potential rebound. “When sentiment gets stretched this far, the S&P 500 has typically delivered strong gains over the following six to twelve months,” he said. “All in all, investors should remain patient.”

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UBS Global Wealth Management’s David Lefkowitz lowered his year-end target for the S&P 500 from 6,600 to 6,400, factoring in recent economic turbulence. However, he still expects stocks to recover and rise by the end of 2025.

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“We continue to believe that U.S. stocks can stage a rebound and finish the year with gains,” Lefkowitz wrote in a Friday note to clients.

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For now, markets remain on edge as investors assess the dual threats of economic slowdown and inflation, with key developments in trade policy expected to dictate the next move.

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