The Dow fell nearly 700 points as new inflation fears dampened hopes for a Fed rate cut.

Wall Street stocks closed lower on Thursday as markets were surprised by data showing slower-than-expected economic growth in the United States and persistent inflation, along with a sell-off in large-cap stocks on disappointing results from Meta Platforms.

The Dow Jones Industrial Average fell 375.12 points, or 1%, to 38,085.12 points, after falling about 700 points in morning trading.

The S&P 500 and Nasdaq fell 0.5% and 0.6%, respectively.

The U.S. economy grew at its slowest pace in nearly two years in the first quarter while inflation accelerated, data on Thursday showed, dampening hopes that the Federal Reserve will begin cutting interest rates this year.

Meta stock fell 11% after Facebook's parent company forecast higher expenses and lower-than-expected revenue.

Other growth stocks were also under pressure, with shares of Alphabet, Amazon and Microsoft falling

“The GDP numbers certainly impact the model that markets have been holding for stocks in terms of high growth; if you don't have high growth that will translate into lower-than-expected earnings,” said James Saint, chief investment officer at Sierra. Mutual Funds in California.

Separately, the number of Americans filing new claims for unemployment benefits unexpectedly fell last week, indicating continued difficult labor market conditions.

“The double whammy was also the stronger-than-expected inflation number so there wasn't really a silver lining in this report; it's still positive in absolute terms but compared to the high expectations it was disappointing.” Aubyn added.

The data comes ahead of the release of the Personal Consumption Expenditures (PCE) index, the Fed's preferred measure of inflation, on Friday.

Money markets are pricing in Fed rate cuts of only about 36 basis points this year, down from about 150 basis points at the start of the year, according to LSEG data.

Gloomy results from other companies also weighed on stocks.

International Business Machines shares fell 8.3% after the company said it would buy HashiCorp in a $6.4 billion deal, and because its first-quarter revenues fell short of estimates.

Southwest Airlines shares fell 7% after it lowered its estimates for deliveries of new Boeing aircraft in 2024 for the third time, saying it plans to take cost-cutting measures to soften the resulting blow.

Caterpillar Inc. lost 7% after the company said it expects sales to decline in the second quarter as demand for its construction equipment tapers off last year's boom.

On the bright side, Newmont stock rose 12% after the world's largest gold miner beat Wall Street estimates for first-quarter earnings.