Last Friday, Wall Street found itself enveloped in an atmosphere thick with pessimismThe Dow Jones Industrial Average, the S&P 500, and the Nasdaq Composite all recorded losses of 1.69%, 1.71%, and 2.20% respectively, closing at 43,428.02, 6,013.13, and 19,524.01. Analysts from DooPrime attributed this sharp decline to a confluence of several unsettling factors: disappointing economic data, a continual deterioration in consumer demand, threats of rising tariffs, and a collective decline in major tech stocks.
Recent data from the United States hit the markets like a heavy hammer: the core PCE price index rose by 2.8% year-on-year in December, slightly lower than expected, yet consumer spending saw a month-on-month decline of 0.4%, marking the most significant drop since January 2022. The University of Michigan's consumer sentiment index unexpectedly fell to 68.1, down 4.2 points from the previous reading, with inflation expectations for the next year jumping to 3.5%. This combination of "inflation resilience + consumer shrinkage" directly undermined optimistic market predictions for a "soft landing" of the economy.
On the corporate front, the outlook was equally grim
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The Purchasing Managers' Index (PMI) for manufacturing, as reported by the Institute for Supply Management, has spent 15 consecutive months in contraction territory, as the new orders index plummeted to 46.3, the lowest level in three yearsWhile the non-manufacturing PMI remains in the expansion zone, the employment subindex dropped below the crucial 50 markThis "dual engine stall" has fundamentally shaken investors' confidence in corporate profit prospectsA model from Goldman Sachs indicates that if consumer growth remains weak, the expected EPS growth for S&P 500 constituents may plummet from 8% to just 3%.
As a bellwether for the retail sector in the U.S., Walmart's Q4 financial report acted as a tipping point for market sentimentAlthough the company's revenue increased by 2.3% year-on-year, its net profit margin compressed from 3.1% to 2.7%, with e-commerce growth slowing to 5.8%. Management candidly stated in a conference call: "Consumers are cutting back on non-essential purchases and shifting towards more affordable private label brands." This trend of "downscaling" consumer behavior was corroborated by reports from retail giants like Target and Kohl's, where sales in clothing dropped by 9.2%, and electronics demand became especially lackluster.
The worsening consumer data mirrors the intensifying wealth divide in American societyAccording to the Federal Reserve, the top 10% of income earners hold 68% of the country's financial assets, while the bottom 50% of households have seen their savings rate plummet to -2.3%. This "K-shaped recovery" has resulted in a serious fragmentation of the consumer market: spending on luxury goods continues to grow (LVMH reported a 12% increase in sales in the U.S. market), yet the sector for mass-market consumer goods is drowning in negativity.
The technology stocks, represented by the "Big Seven," became the sector hardest hit
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Shares of Apple, Microsoft, and Alphabet all fell by over 2%, while Nvidia plunged by 4.1%, marking its largest single-day decline since October 2024. This sell-off is fueled by multiple adverse factors: a slowdown in demand for AI chips (as evidenced by TSMC’s Q4 guidance falling below expectations), the potential antitrust fines arising from the European Union's Digital Markets Act, and a renewed scrutiny of tech stock valuations (the dynamic P/E ratio for the Nasdaq 100 has soared to a lofty 32 times).
The collapse in technology stocks has unveiled the fragility of market structuresA report from BlackRock highlights that the weight of the "Big Seven" in the S&P 500 has soared to 32%, marking a historical highSuch a "over-concentration" of holdings exacerbates market volatility: when these giants experience performance fluctuations or face regulatory risks, the entire market can easily be dragged down.
Despite the steep market decline, Q4 earnings season has revealed a stark contrast in performancesAccording to data from the London Stock Exchange Group, 76% of companies in the S&P 500 surpassed EPS expectations, but only 58% exceeded revenue expectationsThis phenomenon of "profit squeeze" is particularly pronounced in the manufacturing sector: Caterpillar saw its Q4 gross margin decrease by 1.2 percentage points, while 3M's net profit declined by 8% due to rising supply chain costs.
The market's reaction to earnings reports demonstrates significant differentiationPfizer's stock plummeted 7.3% due to sales of its COVID-19 oral medication falling short of expectations, whereas Novo Nordisk saw its shares rise to historical highs thanks to robust performance from its weight loss drug Wegovy
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This differentiation supports Morgan Stanley's perspective that "the current market has entered a 'selective stock picking' phase where macro narratives are losing their influence."
The deterioration of the international trade environment has emerged as the final strawThe Office of the U.STrade Representative recently announced tariffs on $25 billion worth of Chinese goods and initiated a "301 investigation" into EU steel productsThese unilateral actions have triggered a chain reaction in global markets: the renminbi briefly fell below the 7.2 mark, Germany's DAX index dropped by 1.9%, and Japan's Nikkei 225 index fell by 1.4%.
The costs of restructuring global supply chains are becoming evidentResearch from Boston Consulting indicates that U.S. companies have incurred an additional $23 billion in costs to cope with tariffs, with the 3C industry alone experiencing a 15% increase in costsThis "self-harming" trade policy is not only undermining the competitiveness of U.S. businesses but also increasing uncertainty in the global economy.
In light of these drastic market fluctuations, investors are beginning to shift their focusBlackRock has lowered its 2025 U.SGDP growth forecast from 2.1% to 1.6% and is advising an increase in defensive sectors (like utilities and consumer staples). Morgan Stanley has warned that "if consumer growth continues to fall short of expectations, the S&P 500 could fall to 5,500 points."
On the policy front, the stance of the Federal Reserve has become a critical variable