Economic Concerns Trigger Market Volatility Among Major Tech Stocks

The U.S. economy has experienced steady growth over the past few years. Nonetheless, recent worries about tariffs and the escalating trade conflict with China have led to notable stock market fluctuations.

Investors have been keenly observing economic reports for signs of stability. A significant indicator was released on Wednesday, but the news fell short of expectations.

Market Reaction to Weak GDP Report

Under these circumstances, many of the “Magnificent Seven” stocks, which propelled the bull market recently, declined together. Amazon (NASDAQ: AMZN) dropped 3.6%, Meta Platforms (NASDAQ: META) fell 2.9%, and Alphabet (NASDAQ: GOOGL) decreased by 2.4% as of 1:16 p.m. ET on Wednesday.

It’s important to note that little company-specific news influenced the decline of Amazon, Meta Platforms, and Alphabet stocks. This suggests that investor responses are largely tied to disappointing economic indicators.

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GDP Decline Raises Recession Fears

The U.S. Bureau of Economic Analysis provided an initial assessment showing that first-quarter growth was weaker than anticipated. The report indicated that the gross domestic product (GDP) for the first quarter of 2025 decreased at an annual rate of 0.3%. This was below the projected 0.4% growth and a stark contrast to the 2.4% expansion recorded in the fourth quarter.

This unexpected data emerges at a crucial time, with increasing apprehension among economists. A National Association for Business Economics survey revealed that 40% of economists predict a 50% chance of a recession in 2025.

Typically, a recession is defined as two consecutive quarters of declining GDP. If the economy follows its current trajectory, we may already be in the initial stages of recession. Concerns are rising that tariff-driven price hikes could reignite inflation, potentially curbing spending from consumers and businesses, and creating conditions for a downturn.

The report did offer a slight silver lining. The GDP drop was partly due to increased imports as companies prepped for President Trump’s overall tariffs. This scenario, while seeming paradoxical since GDP gauges domestic output, reflects that the calculation tallies total goods and services sold before deducting imports.

Given that these estimates are based on inventory figures that can be imprecise, the data may be skewed by the surge in imports prior to the tariffs. Investors should monitor upcoming revisions scheduled for late May, which will provide a more detailed analysis that could affect GDP figures.

Confirmation of a possible recession awaits the release of second-quarter GDP data in late July. Furthermore, only the National Bureau of Economic Research (NBER), a nonpartisan organization, can officially declare a recession. Their evaluation encompasses a wide variety of economic indicators and often occurs retrospective to the recession’s conclusion.

Implications for Major Tech Stocks

Given the current economic climate, let’s consider the implications for our three Magnificent Seven companies:

• Alphabet, Meta Platforms, and Amazon are dominant players in digital advertising. Historically, during downturns, companies often reduce advertising budgets, directly affecting these three.
• A reduction in consumer spending would adversely impact Amazon’s digital retail sales.
• Economic uncertainty typically leads businesses to conserve capital, slowing down investments in artificial intelligence (AI) and cloud infrastructure, which could hurt Amazon Web Services and Google Cloud.

While these developments can be disconcerting, most economic downturns tend to be brief. Additionally, past stock market dips have often presented prime opportunities for long-term investors to acquire quality companies at lower valuations.

Currently, shares of Amazon, Meta Platforms, and Alphabet trade at 29, 22, and 16 times forward earnings, respectively. These multiples are attractive, especially given each company’s strong operational track record.

For investors with a longer-term perspective, acquiring shares in these leading companies offers the potential for significant returns over the next three to five years, regardless of short-term market fluctuations.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.