Nasdaq Drops 2% Amid Growing U.S. Stagflation Concerns and Market Sell-Off

Stock Market Volatility Rises as Consumer Sentiment and Economic Growth Decline / Reuters

 

The U.S. stock market witnessed a sharp decline as concerns over stagflation and new tariff threats triggered a massive sell-off. The Nasdaq Composite tumbled over 2%, while the Dow Jones Industrial Average and S&P 500 also posted significant losses amid growing uncertainty about economic stability and consumer spending.

On February 21 (local time), the Dow Jones Industrial Average fell 748.63 points (-1.69%) to close at 43,428.02. The S&P 500 dropped 104.39 points (-1.71%) to settle at 6,013.13, while the Nasdaq Composite plummeted 438.36 points (-2.20%) to end at 19,524.01. This marks the steepest daily decline for the S&P 500 since December 18. Over the past week, the S&P 500 shed approximately 1.7%, with the Dow and Nasdaq each losing 2.5%. Meanwhile, the CBOE Volatility Index, a key measure of market fear, surged to its highest level since February 3.

Investors are shifting their assets toward bonds as the economic outlook darkens. Recent data indicates a slowdown in corporate activity and declining consumer confidence, raising concerns about stagnating economic growth paired with persistent inflation—an environment often referred to as stagflation.

The University of Michigan’s Consumer Sentiment Index for February fell sharply to 64.7, a nearly 10% drop, reflecting growing anxiety over inflation and potential new tariffs. Notably, the five-year inflation expectations within the survey hit 3.5%, the highest level since 1995. Additionally, existing home sales declined more than expected, dropping to 4.08 million units, while S&P Global reported contraction in the U.S. services sector’s Purchasing Managers’ Index (PMI) for February.

Market analysts suggest that consumer sentiment, tariff policies, and corporate earnings are now overshadowing AI-driven and tech-sector growth as primary market drivers. Greg Bassuk, CEO of AXS Investments, told Reuters that these factors are shaping the trajectory of financial markets more than technological advancements.

Chris Williamson, Chief Economist at S&P Global, painted a bleak picture, noting that corporate optimism has "evaporated" amid heightened uncertainty. He emphasized that market volatility and economic unpredictability are likely to persist through the first quarter of the year.

Sectors most sensitive to economic conditions—transportation, semiconductors, small-cap stocks, housing, and consumer discretionary—fell over 2%. Nvidia, set to report earnings next week, slumped 4.1%, while all members of the "Magnificent Seven" tech stocks saw declines.

Adding to market jitters, President Donald Trump reiterated plans for additional tariffs on imported goods, including automobiles, semiconductors, pharmaceuticals, lumber, and forest products. This announcement further fueled inflation concerns and weighed on investor sentiment.

Of the S&P 500’s 11 key sectors, only consumer staples managed to avoid losses. Discretionary and technology stocks suffered the heaviest declines, as investors pulled back from growth-oriented assets.

The fourth-quarter earnings season is nearing its conclusion, with approximately 425 S&P 500 companies having reported their results. According to LSEG data, 76% of these firms exceeded Wall Street expectations. Analysts now project S&P 500 earnings growth of 15.7% year-over-year, significantly outpacing the 7.8% growth forecasted at the start of January.

Electric vehicle makers Tesla and Rivian both plunged 4.7% after announcing vehicle recalls. UnitedHealth Group also faced a setback, losing 2% following news that the Department of Justice is investigating its Medicare billing practices.

Payment company Block saw its stock nosedive 17.7% after missing revenue expectations for Q4, while cybersecurity firm Akamai Technologies tumbled 21.7% after issuing a weaker-than-expected revenue forecast for 2025.

With economic uncertainty rising and new tariff risks looming, investors are bracing for continued volatility in the coming months, keeping a close watch on upcoming economic data and policy announcements.