Dow sinks 500 points. Stocks are on track for their worst quarter since 2023

New York (CNN) — US stocks were lower Friday as investors digested souring consumer sentiment and inflation data that showed an uptick in one of the Federal Reserve’s key gauges, underscoring the delicate state of the economy as businesses brace for President Donald Trump’s tariffs.

The Dow opened lower and tumbled 550 points, or 1.3%. The broader S&P 500 fell 1.6% and the Nasdaq Composite slid 2.2%.

The S&P 500 is down more than 4% since this year and on track for its first losing quarter since September 2023.

The Personal Consumption Expenditures index rose 2.5% year-over-year in February, unchanged from January and matching expectations. Yet the core PCE index, which strips out volatile categories like food and energy, ticked up to 2.8% year-over-year from 2.7% in January. That hotter-than-expected rise signals that inflation, while broadly cooling, remains above the Fed’s target of 2%.

Meanwhile, consumer sentiment tanked 12% this month, according to the University of Michigan’s latest survey released Friday.

Lululemon (LULU) stock tumbled 15% on Friday after the company flagged concerns about the outlook for consumer spending on a call with investors.

“We also believe the dynamic macro environment has contributed to a more cautious consumer,” said Calvin McDonald, chief executive at Lululemon.

Wall Street was also grappling with Trump’s announcement on Wednesday of 25% tariffs on all cars shipped into the US, set to go into effect April 3. Trump also announced tariffs on car parts like engines and transmissions, set to take effect “no later than May 3,” according to the proclamation he signed.

“It’s natural for people to expect higher prices because we haven’t seen a trade war like this since McKinley,” Art Hogan, chief market strategist at B. Riley Wealth Management, told CNN’s Matt Egan.

Investors sold off stocks amid renewed anxiety about the impact of auto tariffs on the economy. Tariffs are a tax on imported goods, and economists expect Trump’s sweeping tariff proposals will cause an increase in consumer prices and drag on economic growth.

The yield on the 10-year Treasury note fell to 4.27% as investors snapped up government bonds, highlighting a risk-averse sentiment amid tariff uncertainty.

Wall Street’s fear gauge, the Cboe Volatility Index, or VIX, surged 10%. CNN’s Fear and Greed Index ticked into “extreme fear” territory, highlighting renewed anxiety among investors.

The tariffs on autos are an escalation in a trade war with the US’ biggest trading partners, threatening to roil global markets and disrupt a deeply intertwined supply chain across North America.

“While the economy appears solid, business executives are adopting a cautious stance on new investments, largely due to the Trump administration’s aggressive and unpredictable tariff policy,” said Matt Stephani, president of Cavanal Hill Investment Management, in an email.

Trump’s decision to announce the tariffs on autos ahead of the April 2 deadline when reciprocal tariffs are set to be revealed — a date dubbed “Liberation Day” by the Trump administration — has stoked uncertainty on Wall Street. The early announcement highlights Trump’s commitment to tariffs, testing some investors’ initial hope that they might only be a negotiating tactic.

“We think the proposed tariffs as announced would deliver a big hit to the auto industry, stoking higher costs, higher prices and a sharp decline in US sales,” said Solita Marcelli, chief investment officer for the Americas at UBS Global Wealth Management, in a note Thursday.

“[The] question is what these very aggressive automotive tariffs signal for next week’s announcement on both reciprocal and ex-auto sector tariffs,” Marcelli added.

Even if Trump’s reciprocal tariffs are not as “severe as initially feared,” market volatility could pick back up due to the auto tariff announcement, according to Marcelli.

“There is no doubt that just as yesterday’s market session was dominated by worries about tariffs, today’s session and the sessions until April 2 (“Liberation Day”) will also see traders preoccupied with tariffs,” said Thierry Wizman, global FX and rates strategist at Macquarie, in a Thursday note.

Wall Street’s outlook sours

Wall Street’s expectations for US stocks this year is being revised down amid continued announcements about tariffs.

Analysts at UBS on Friday trimmed their year-end target for the S&P 500 to 6,400 from 6,600.

Analysts at Barclays this week lowered their year-end target for the S&P 500 to 5,900 from 6,600. Goldman Sachs earlier this month lowered its year-end target to 6,200 from 6,500.

Ed Yardeni, president of investment advisory Yardeni Research, recently lowered his year-end target to 6,400 from 7,000.

Meanwhile, the most actively traded gold futures contract in New York on Friday surged above a record high $3,100. Gold is considered a safe haven amid economic turmoil and a hedge against potential inflation.

Goldman Sachs this week revised its year-end target for gold prices to $3,300, up from $3,100, underscoring how the yellow metal’s rise this year is expected to last amid economic and geopolitical uncertainty.

This is a developing story and will be updated.

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