NEW YORK — U.S. stocks fell sharply Feb. 21 after reports showed that worries among consumers and businesses about President Donald Trump’s policies may be hitting the U.S. economy.
The S&P 500 sank 1.7 percent for its worst day in two months. The Dow Jones Industrial Average also dropped 1.7 percent, and the Nasdaq composite fared worse, tumbling 2.2 percent.
The losses accelerated through the day following several weaker-than-expected reports on the economy. One suggested U.S. business activity is close to stalling, with growth slowing to a 17-month low. The preliminary report from S&P Global said activity unexpectedly shrank for U.S. services businesses, and many in the survey reported slumping optimism because of worries about Washington.
“Companies report widespread concerns about the impact of federal government policies, ranging from spending cuts to tariffs and geopolitical developments,” said Chris Williamson, chief business economist at S&P Global Market Intelligence. “Sales are reportedly being hit by the uncertainty caused by the changing political landscape, and prices are rising amid tariff-related price hikes from suppliers.”
A separate report said U.S. consumers are also preparing for higher inflation, in part because of potential tariffs that could raise prices for all kinds of imports. They’re broadly expecting prices to be 4.3 percent higher 12 months from now, which is a big jump from their forecast of 3.3 percent inflation last month, according to a survey by the University of Michigan. That fits with preliminary data in the survey earlier this month.
Among U.S. households, though, a divide is evident underneath the surface. Expectations for inflation are rising for political independents and Democrats, while falling slightly for Republicans.
A third economic report, meanwhile, said sales of previously occupied homes were weaker last month than economists expected. Relatively high mortgage rates, along with expensive prices for homes, have been hurting sales.
To be sure, the U.S. stock market is still up for the young year so far and is not far from its all-time high set earlier this week. Virtually no one on Wall Street is forecasting a recession anytime soon. But Friday’s reports raise concerns about what’s been a remarkably resilient economy, and the losses on Wall Street were widespread.
Stocks of the smallest companies, whose profits can be more closely tied to the strength of the U.S. economy than big multinational rivals, fell more than the rest of the market. The Russell 2000 index of small stocks dropped a market-leading 2.9 percent.
Within the big companies in the S&P 500 index, three out of every four stocks fell. They included “Big Tech” stocks that have been bid up amid the artificial-intelligence frenzy, airlines and metals companies. Nvidia sank 4.1 percent. United Airlines lost 6.4 percent, and Newmont Mining fell 5.7 percent.
Akamai Technologies had the sharpest drop in the S&P 500, even though the cybersecurity and cloud-computing company reported a bigger profit for the latest quarter than expected. It lost a fifth of its value and fell 21.7 percent as investors focused instead on disappointing sales forecasts for revenue and other financial measure for the year.
On the winning side of Wall Street was Celsius Holdings, which sells “better-for-you” energy drinks. It leaped 27.8 percent after saying it agreed to buy Alani Nu, a beverage company that focuses on female customers.
Other winners included stocks of companies that can provide steadier profits regardless of the U.S. economy’s strength. Water utility American Water Works rose 3.1 percent, for example.
Before Friday’s sharp drop, the S&P 500 had been heading for a week of almost zero movement. Helping to lift stocks had been a steady parade of better-than-expected profit reports. That helped offset worries about stubbornly high inflation, which could prevent the Federal Reserve from delivering more relief for the economy and financial markets through lower interest rates.
The Fed has been holding its main interest rate steady after sharply cutting it through the end of last year. At their last policy meeting in January, Fed officials suggested they may stay on hold for a while given worries about how Trump’s proposed tariffs and mass deportations of migrants, along with other factors, could push upward on inflation.
While lower rates can boost the economy, they can also encourage spending that puts upward pressure on inflation.
Treasury yields fell in the bond market following Friday’s weaker-than-expected economic reports, a sign that investors were trading stocks for the safety of government bonds. The yield on the 10-year Treasury sank to 4.42 percent from 4.51 percent late Thursday.