US stocks declined in early trading on Wednesday after data showed the economy contracted in the first quarter, with President Donald Trump’s policy shifts, particularly on trade, weighing on business confidence.
The Dow Jones Industrial Average dropped 615 points, or 1.47%. The S&P 500 fell around 2%, while the Nasdaq Composite lost 2.4%.
The Commerce Department reported a 0.3% contraction in first-quarter GDP.
Separately, ADP data indicated a slowdown in hiring, with private payrolls rising by 62,000 in April, well below the 120,000 expected by economists surveyed by Dow Jones.
The weak economic data stalled a rebound in equities that had taken shape over the month.
Markets had initially dropped sharply after Trump’s April 2 announcement of “reciprocal” tariffs, with the S&P 500 down more than 11% at one stage and nearly 20% off its February peak.
A partial recovery followed as the administration softened its stance on tariffs, bringing the S&P 500 to within 1% of break-even for the month heading into Wednesday.
US economy shrinks in Q1
The US economy shrank in the first quarter of 2025, raising concerns about a potential recession early in President Donald Trump’s second term amid escalating trade tensions.
Gross domestic product declined at a 0.3% annualized rate from January through March, according to the Commerce Department’s report released Wednesday.
This marks the first quarterly contraction since the first quarter of 2022. The figures are adjusted for inflation and seasonal factors.
Economists surveyed by Dow Jones had expected a 0.4% increase, following a 2.4% expansion in the previous quarter.
However, some Wall Street forecasts shifted to negative territory in recent days, citing a surge in imports as businesses and consumers rushed to make purchases ahead of new tariffs introduced in early April.
Imports jumped 41.3% for the quarter, led by a 50.9% rise in goods. Since imports are subtracted from GDP, they weighed heavily on the overall reading, subtracting more than five percentage points.
Exports rose 1.8%. Given the nature of the import spike, the decline in GDP may be seen as temporary, with some expecting a reversal in later quarters.
Goldman Sachs predicts more pain ahead
The stock market appears to be pricing in a resolution to the recent tariff disputes, but Goldman Sachs advises caution until there is clearer evidence that the economy is not heading into a recession.
The S&P 500 has posted six consecutive gains, trimming its April losses to under 1% and recovering most of the decline following the “Liberation Day” tariff rollout.
From the March 31 close to the intraday low on April 7, the index had fallen 13.8% in less than five sessions.
Goldman Sachs macro strategist Vickie Chang noted in a client report that while markets often bottom alongside economic lows, they can also recover earlier if a clear source of pressure begins to ease.
“In past equity corrections, markets tended to bottom near the trough in economic activity. But if there was a clear cause of the weakness, it was enough for the market to see the peak in pressure from that source to conclude that activity would bottom soon, and for equities to trough ahead of that,” she said.
Still, Chang warned that risks remain. “Despite that possibility, we still think there is significant vulnerability in a recession scenario, even if the worst of the underlying ‘shock’ has passed.”
While the effects of higher tariffs are not yet fully visible in economic indicators, the first-quarter GDP contraction reported on Wednesday suggests the economy may have already been slowing before the April 2 tariff measures.
The post US stocks open in the red: Dow slips 1.5%, Nasdaq slips over 2% appeared first on Invezz