US stock markets sink over weak data on country's economic growth

The US stocks began Wednesday with a thud after a report suggested the US economy may have shrunk at the start of the year. But the big losses eased as the morning progressed in the latest sharp swings to hit Wall Street amid uncertainty about what President Donald Trump's trade war will do to the economy.

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The S&P 500 was down 0.9% in midday trading and on track to break a six-day winning streak. The Dow Jones Industrial Average was down 223 points, or 0.68, as of noon Eastern time, and the Nasdaq composite was 1.2% lower.

They had been on track for much worse losses earlier in the morning, when the S&P 500 was down as much as 2.3% and the Dow dropped 780 points. They sank after the report on the US economy fell well short of economists' expectations, a sharp turnaround from the economy's solid pace of growth at the end of last year.

Importers rushed to bring products into the country before tariffs could raise their prices, which helped drag on the country's overall gross domestic product.

Such data raises the threat of a worst-case scenario called "stagflation," one where the economy stagnates yet inflation remains high. Economists fear it because the Federal Reserve has no good tools to fix both problems at the same time. If the Fed were to try to help one by adjusting interest rates, it would likely make the other problem worse.

"Even if today's weak GDP may have partially reflected companies trying to get ahead of tariffs, it was still a stagflation warning shot over the bow of the economy," according to Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management.