The stock market experienced a sharp downturn on Friday as renewed inflation fears, declining consumer confidence, and growing skepticism over the profitability of artificial intelligence (AI) investments triggered a wave of heavy selling.

The S&P 500 dropped 2%, marking its second-worst day of 2025, while the Nasdaq Composite plummeted 2.7%, reaching new lows for the year. The Dow Jones Industrial Average (DJIA) also declined by 1.7%. This downturn puts both the S&P 500 and Nasdaq on track for their fifth weekly decline in the last six weeks.

Key Market Drivers Behind the Selloff

Inflation and Interest Rate Uncertainty

The Bureau of Economic Analysis (BEA) reported that the Federal Reserve’s preferred inflation gauge rose more than expected in February, indicating that higher interest rates may persist for longer. This news dampened investor sentiment, as fears of prolonged restrictive monetary policy weighed heavily on equity markets.

A separate report from the University of Michigan highlighted a surge in consumer inflation expectations, further fueling uncertainty. Concerns over rising unemployment and weakening consumer sentiment have added to investor anxiety.

AI Investment Concerns Weigh on Tech Stocks

Despite fueling significant stock market gains over the past two years, the AI boom is now under scrutiny. Investors are questioning whether the massive capital poured into AI-related projects will deliver sustainable long-term returns.

• Nvidia (NVDA) stock fell nearly 2% on Friday, extending its decline to 27% from its January peak, wiping out approximately $1 trillion in market value.
• A report earlier this week suggested Microsoft (MSFT) may be scaling back its AI infrastructure investments, raising concerns about the overall appetite for further AI-related spending. While Microsoft denied a complete pullback, the company acknowledged potential strategic pacing of infrastructure expansion.
• CoreWeave, a cloud computing startup specializing in AI, slashed the price range and share count for its IPO, signaling potential investor skepticism in AI-related businesses.

Market Outlook: Uncertainty Looms

The market is facing a dual squeeze, with fears over upcoming reciprocal tariffs hitting key exporting sectors like technology, alongside concerns about how higher prices could impact consumer spending.

Scott Helfstein, Head of Investment Strategy at Global X, noted that despite the market turmoil, there have not been significant fund flows into money markets, indicating that many investors are still holding their positions rather than shifting to defensive assets.

“Despite today’s selloff and the recent market volatility, investors seem to be attempting to ride out the storm,” Helfstein told CNBC.

Final Thoughts

While the stock market is experiencing short-term turbulence, long-term investors may see opportunities amidst the selloff. However, inflation trends, the Federal Reserve’s monetary policy, and the future of AI investments will remain key factors shaping market movements in the coming months.

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