The Down Jones Industrial Average fell this week for the sixth consecutive week. The Nasdaq stock index is now down 25% since November.
This reflected underlying economic weaknesses: the U.S. economy shrank at a rate of 1.4% in the most recent quarter, reflecting a huge rise in America’s trade deficit. American exports decreased by 9.6%, while imports grew by 17.7%. U.S. productivity dropped at a 7.5% annual rate, the most since 1947.
Stocks fell Friday after a tumultuous week that saw the market rise and fall by the biggest one-day percentages since 2020. Stocks fell more sharply on Thursday than on any day in two years. The Dow lost more than 1,000 points, while the tech-heavy Nasdaq fell 5%. Both indexes experienced their worst one-day drops since June 2020. Thursday’s drop erased big gains on Wednesday, when stocks rose after Fed Reserve Chair Jerome Powell ruled out the prospect of sharper interest rate hikes. But investors’ relief “was short lived,” said Barclays Bank’s Emmanuel Cau. “Unless surging inflation quickly reverses its course,” the Fed and other “central banks may have no other choice than slowing growth to slow inflation and stay credible.”
Inflation has risen at an alarming rate. The Consumer Price Index (CPI), the chief measure of inflation, soared 8.5% over the past year, the biggest increase since 1981. Producer prices have also skyrocketed, at the highest rate ever measured. Wholesale price inflation has reached double digits. Inflation is twice as high in America as it is in much of Europe.
Tech stocks fell more than most of the market on Friday. Amazon fell 1.4%. Netflix and Crowdstrike dropped 3.9% and 8.9%, respectively. Biotech and solar energy stocks fell even more rapidly. Illumina declined over 14%, and Enphase Energy went down 8.4%.
Tech stocks underperformed the overall market for the week, especially e-commerce stocks. Amazon and Shopify finished the week down roughly 7.7% and 11.6%, respectively. The S&P 500 and Nasdaq fell for the fifth straight week.
Under Trump, the U.S. economy outperformed Europe, especially during the pandemic year of 2020, when Britain, France and Italy experienced much sharper economic declines than the U.S. The U.S. economy shrank 3.5% in 2020. The economy shrank much more in Europe: 7.9% in France, 9.9% in the United Kingdom, and 8.9% in Italy.
But that has changed under Biden. While America’s economy was shrinking recently, France’s economy was growing in 2022, and France’s inflation rate is lower than America’s. A finance professor describes the current era in the U.S. as “The Biden stagflation,” combining high inflation with economic stagnation.
Biden’s policies caused inflation, according to economists like Bill Clinton’s Treasury Secretary, Larry Summers, and Obama treasury official Steven Rattner. As Rattner noted in the New York Times, Biden has spent “an unprecedented amount” of taxpayer money, which resulted in “too much money chasing too few goods.”
To deal with the high inflation of the Biden era, Senator Majority Leader Charles Schumer (D-NY) suggested a tax increase. But raising taxes on Americans would likely reduce economic growth and could deepen the coming recession. Many economists are already predicting a recession by 2023.
America’s economic productivity may decline further. The economy is being held back by Biden Administration policies that discourage work, reward idleness, and make it harder for companies to attract employees. Biden enacted policies that reduced the size of America’s private-sector workforce and made America less economically competitive.
