US markets opened in the red Tuesday morning, reacting to fresh economic data that showed the economy unexpectedly contracted in the first quarter of 2025. Investor sentiment soured sharply, sending major indexes tumbling.
By 9:51 AM ET, Dow Jones Industrial Average sank 661.52 points (-1.63 per cent) to 39,866.1, and the Nasdaq Composite dropped 440.63 points (-2.52 per cent) to 17,020.69, following the release of first-quarter GDP data showing the US economy unexpectedly contracted. The S&P 500 had also declined 2.02 per cent to 5,448.47, as widespread recession fears overtook investor sentiment. The GDP contraction has reignited concerns that the US may be entering a technical recession, defined by two consecutive quarters of negative growth.
Risk-off sentiment was palpable, as the VIX — Wall Street’s fear gauge — surged 14.48 per cent to 27.67 at the same timestamp, reaching its highest level in months.
In commodities, gold held relatively firm, slipping just 0.16 per cent to $3,328.4, while oil prices fell 1.41 per cent to $59.57, reflecting softer demand expectations amid slowing economic activity.
Bond markets signalled cautious optimism, with the US 10-Year Treasury yield inching down to 4.166 per cent (-0.008), and forex markets saw the euro weaken against the US dollar, with EUR/USD at 1.137 (-0.002 or -0.141 per cent).
Earlier, the US economy unexpectedly shrank during the first quarter of the year, according to new data released Wednesday, primarily due to a surge in imports ahead of broad tariffs introduced by President Donald Trump.
Gross domestic product (GDP) in the world’s largest economy declined at an annual rate of 0.3% in the first quarter, following a 2.4% expansion in the final quarter of 2024, according to a preliminary estimate from the US Commerce Department.
“The decline in real GDP in the first quarter was driven by an increase in imports, slower consumer spending, and a drop in government expenditures,” the Commerce Department said.
US financial markets responded negatively to the report, with futures falling ahead of the opening bell on Wall Street.
“Just 100 days into his presidency, Donald Trump’s unpredictable tariff strategy is dragging down the economy, with businesses stockpiling imports ahead of a potential tariff crisis,” said Democratic Senator Elizabeth Warren in a statement following the GDP release.
Meanwhile, Wall Street premarket trading was mixed on Wednesday as companies continued reporting earnings and uncertainty surrounding Trump’s trade policies lingered.
S&P 500 futures fell 0.3%, Nasdaq futures dropped 0.5%, while Dow Jones Industrial Average futures edged up 0.1%.
Shares of Starbucks plunged nearly 9% after the company missed analysts’ estimates for both sales and profits in the second quarter. Despite notching its first quarterly sales gain in over a year, the coffee giant acknowledged that its recovery is still in progress.
Visa shares rose slightly, up less than 1%, after the company exceeded Wall Street’s expectations for second-quarter revenue and earnings. Visa noted that consumer spending remained strong last quarter, despite recent consumer confidence surveys showing growing concern about the effects of Trump’s tariffs.
Investors were also awaiting quarterly earnings reports from tech giants Microsoft and Meta, parent company of Facebook, scheduled for release after the market close.
Corporate leaders have voiced uncertainty over how long their companies can sustain profits amid the ongoing trade war, citing a lack of clear direction from the Trump administration.
There are growing fears that the president’s tariff policies could trigger a recession by disrupting global trade and driving prices higher across a wide range of products.
Later Wednesday, the government is expected to release its first estimate for US first-quarter GDP growth, with economists predicting growth of less than 1% during the January–March period.
A separate report on consumer spending, which includes the Federal Reserve’s preferred inflation measure, is also due.
In Europe, the eurozone economy grew by 0.4% in the first quarter—an improvement from the last quarter of 2024. However, the outlook is clouded by increased tariffs on exports from the 20-member euro currency zone.
Germany’s DAX index climbed 0.7% after the centre-left Social Democrats voted to support a coalition agreement, clearing the way for Friedrich Merz to become Germany’s next chancellor.
France’s CAC 40 also rose 0.7%, while the UK’s FTSE 100 edged up 0.2%.
In Asia, Japan’s Nikkei 225 index gained 0.6% to close at 36,045.38.
Japanese automaker stocks were mixed following Trump’s move to ease some tariffs on car and auto parts imports. Toyota Motor Corp. fell 1.6%, Honda Motor Co. rose 0.4%, and Nissan Motor Co. dipped 0.2%.
In Hong Kong, the Hang Seng index added 0.5% to 22,119.41, while China’s Shanghai Composite index slipped 0.2% to 3,279.03 as surveys showed a decline in export orders from Chinese manufacturers in April following the imposition of higher US tariffs.
South Korea’s Kospi dropped 0.3% to 2,556.61, while Australia’s S&P/ASX 200 jumped 0.7% to 8,126.20.
In energy markets, US benchmark crude oil declined 45 cents to $59.97 per barrel, while Brent crude, the global benchmark, fell 43 cents to $62.85 per barrel.
The US dollar strengthened to 142.93 Japanese yen from 142.35 yen. The euro weakened slightly to $1.1379 from $1.1386.