Dow drops on inflation and growth concerns, Meta slides

Stocks tumbled Thursday after the latest U.S. economic data showed a sharp slowdown in growth and pointed to persistent inflation.

The Dow Jones Industrial Average slid 493 points, or 1.3%, weighed down by steep declines in Caterpillar and IBM. The S&P 500 dropped 0.9%, and the Nasdaq Composite lost 1.3%.

U.S. gross domestic product expanded 1.6% in the first quarter, the Bureau of Economic Analysis said. Economists polled by Dow Jones forecast GDP growth would come in at 2.4%.

Along with the downbeat growth rate for the quarter, the report showed consumer prices increased at a 3.4% pace, well above the previous quarter’s 1.8% advance. This raised concern over persistent inflation and put into question whether the Federal Reserve will be able to cut rates anytime soon.

“In the short term, the numbers don’t appear to be a green light for either bulls or bears…the uncertainty is unlikely to ease pressures in a market experiencing its deepest pullback since last year,” said Chris Larkin, managing director of trading and investing at E*Trade from Morgan Stanley.

Following the GDP print, traders moved down expectations for an easing of Federal Reserve monetary policy. Fed funds futures trading data suggests there will be just one interest rate cut this year, according to the CME FedWatch Tool.

The lackluster GDP added further pressure to an already-tense market contending with concerns over a pullback in growth among technology earnings.

Meta plunged 12% after the social media giant issued light revenue guidance for the second quarter. That would be the stock’s biggest one-day decline since October 2022. International Business Machines also fell 8% after missing consensus estimates for first-quarter revenue.

“For all of the attention given to generative AI in the past nine months, the failure of Meta to attain its revenue growth projections in Q1 is raising questions about whether the monetization of this technology is as easy as what traders were led to believe by management,” said Thierry Wizman, global FX and rates strategist at Macquarie.

Meta’s report raises concern ahead of other big tech releases. Microsoft and Alphabet are slated to post earnings after the close Thursday.

1:15 p.m.: Meta’s AI spending could benefit these stocks

Meta Platforms is down nearly 12% in midday training as investors react to the news that it will take a while to see the full benefits of the company’s rising investments in artificial intelligence. But one company’s loss could be another’s gain. As Meta’s spending could turn into bigger revenue at Super Micro, Arista Networks, Pure Storage, Broadcom and AMD, according to Wells Fargo.

Analyst Aaron Rakers estimates Meta was an approximately 10% customer for Super Micro in the fourth quarter of 2023, and for Pure Storage last year.

Arista Networks, which makes ethernet-based AI cables and other products, received…