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Financial-Markets                      02/07 16:02

   

   NEW YORK (AP) -- U.S. stocks slumped Friday as worries flared again on Wall 
Street about tariffs and inflation.

   The S&P 500 fell 0.9% and erased what had been a modest gain for the week. 
It's one of the worse drops for the index so far in the young year, but it 
remains near its record set two weeks ago.

   The Dow Jones Industrial Average sank 444 points, or 1%, and a sharp fall 
for Amazon after its latest profit report dragged the Nasdaq composite to a 
market-leading loss of 1.4%.

   Treasury yields also climbed in the bond market after a discouraging report 
on Friday morning suggested sentiment is unexpectedly souring among U.S. 
consumers. The preliminary report from the University of Michigan said U.S. 
consumers are expecting inflation in the year ahead to hit 4.3%, the highest 
such forecast since 2023.

   That's a full percentage point above what consumers said they were expecting 
a month earlier, and it's the second straight increase of an unusual amount. 
Economists pointed to the possibility of U.S. tariffs on a wide range of 
imported products, which President Donald Trump has proposed and could 
ultimately push up prices for U.S. consumers.

   Trump said at a White House press conference Friday that he's likely to have 
an announcement on Monday or Tuesday on "reciprocal tariffs, where a country 
pays so much or charges us so much, and we do the same."

   The consumer-sentiment data followed a mixed update on the U.S. job market, 
which is often each month's most anticipated economic report. It showed hiring 
last month was less than half of December's rate, but it also included 
encouraging nuggets for workers: The unemployment rate eased, and workers saw 
bigger gains in average wages than economists expected.

   All the data taken together could keep the Federal Reserve on hold when it 
comes to interest rates. The Fed began cutting its main interest rate in 
September in order to relax the pressure on the economy and job market, but it 
warned at the end of the year that it may cut fewer times in 2025 than it 
earlier expected given worries about inflation staying stubbornly high.

   Interest rates are one of the things Wall Street cares most about because 
lower rates can lead to higher prices for stocks and other investments. The 
downside is they can also give inflation more fuel.

   For Scott Wren, senior global market strategist at Wells Fargo Investment 
Institute, the jobs report did nothing to change his forecast for the Fed to 
cut the federal funds rate just once in 2025. That's a touch more conservative 
than many traders on Wall Street, who collectively see a 45% chance the Fed 
will cut at least twice, according to data from CME Group. Of course, some 
traders are also betting on the possibility for zero cuts.

   Wren said financial markets could stay shaky in the near term, not only 
because of uncertainty about interest rates but also about Trump's tariffs and 
other unknowns around the world.

   After rocking financial markets at the start of this week, worries about a 
potentially punishing global trade war had eased a bit after Trump gave 30-day 
reprieves for tariffs on both Mexico and Canada.

   In the meantime, stocks of big U.S. companies continue to swing as they 
report how much profit they made during the last three months of 2024. Most are 
reporting better results than expected, which is typical, but that's not always 
enough.

   Amazon, one of Wall Street's most influential companies, topped analysts' 
expectations for earnings at the end of 2024, but its stock nevertheless fell 
4.1%. Investors focused instead on its forecast for upcoming revenue, which 
fell short of analysts' expectations.

   Homebuilders also tumbled to sharp losses as fewer cuts to interest rates by 
the Fed could help keep mortgage rates high. D.R. Horton fell 5%, and Lennar 
sank 4.2%.

   On the winning side of Wall Street was Expedia Group, which leaped 17.3% 
after reporting better profit for the last three months of 2024 than analysts 
had forecast.

   Expedia CEO Ariane Gorin said demand for travel during the latest quarter 
was stronger than expected, and the company is also bringing back its dividend 
for investors. It had suspended its payouts to shareholders in 2020 after the 
COVID-19 pandemic crushed the travel industry.

   All told, the S&P 500 fell 57.58 points to 6,025.99. The Dow Jones 
Industrial Average dropped 444.23 to 44,303.40, and the Nasdaq composite sank 
268.59 to 19,523.40.

   In the bond market, the 10-year Treasury yield rose to 4.48% from 4.44% late 
Thursday. The two-year Treasury yield, which more closely tracks expectations 
for the Fed, rose more. It climbed to 4.28% from 4.22%.

   A fear among economists is that when U.S. households expect inflation to be 
high in the future, they could begin buying things in advance and making other 
moves that can leadto a self-fulfilling cycle that worsens inflation. That 
could push the Fed to keep the federal funds rate higher than it otherwise 
would.

   In stock markets abroad, indexes fell modestly across Europe after finishing 
mixed in Asia.

   ___

   AP Business Writer Zen Soo contributed.

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