Stock market experiences year’s largest drop

by / ⠀News / February 24, 2025

The stock market suffered its largest single-day drop of the year on Friday, following the release of concerning U.S. economic data. The S&P 500 index fell by 1.7% as investors grew anxious about future economic prospects and inflation. Previously, the market had been bolstered by strong economic data and had shown “immunity” to tariff threats and the Federal Reserve’s tightening policies for two months.

However, disappointing figures released on the 21st of February, including consumer confidence, real estate, and the service industry, triggered the sharp decline. In reaction to the poor economic data, investors sought safe-haven assets, with the yield on 10-year U.S. Treasury bonds dropping nearly 8 basis points to 4.43%. Michael O’Rourke, Chief Market Strategist at JonesTrading, noted that the data does not support the speculation and hope that Trump’s policies would promote deflationary growth.

The final data from the University of Michigan for February indicated that consumers expect prices to rise at an annual rate of 3.5% over the next five to ten years, the highest level since 1995. The 1-year inflation expectation for February is 4.3%, the highest since November 2023, while the 5-year inflation expectation is 3.5%, the highest since April 1995. The US February Services PMI unexpectedly fell into contraction, hitting a new low since January 2023.

Market’s largest single-day drop

Although the manufacturing sector managed to improve and expand, the February Markit Composite PMI preliminary value dropped to its lowest since September 2023. Following this data, expectations for interest rate cuts increased, with the US interest rate futures market anticipating a reduction of 44 basis points this year, up from 38 basis points the previous day.

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The market sentiment has significantly shifted, with increased anticipation that the Federal Reserve may restart the rate-cutting process at policy meetings in September or October. The VIX, a measure of market volatility, rose to one of its highest levels this year, though it remains below 20. The bond market also showed increased risk-averse sentiment, rising for the third consecutive day.

Investors had been pouring funds into the market since the beginning of the year, with US cross-asset exchange-traded funds (ETFs) absorbing $155 billion, setting a historical high for the same period. EPFR Global data showed the weekly inflow of junk bonds reached its highest level in three months, and the inflow into the US stock market in January hit a historical high. Ayako Yoshioka, Senior Portfolio Manager at Wealth Enhancement Group, advises maintaining a diversified portfolio and continuing to invest in various risk assets to hedge against market volatility.

However, Bank of America interest rate strategist Bruno Braizinha cautioned that investors are entering a somewhat complacent area and should hedge against tail risks, given the high uncertainty in economic policy and trade.

Image Credits: Photo by Adam Śmigielski on Unsplash

About The Author

Ashley Nielsen

Ashley Nielsen earned a B.S. degree in Business Administration Marketing at Point Loma Nazarene University. She is a freelance writer who loves to share knowledge about general business, marketing, lifestyle, wellness, and financial tips. During her free time, she enjoys being outside, staying active, reading a book, or diving deep into her favorite music. 

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