U.S. equities lost ground Wednesday after data pointed to a slowdown in economic growth, fueling concerns about trade policy and softening demand.

The S&P 500 dropped as much as 2.3% after the open, while the Nasdaq Composite fell nearly 2.9%, led by weakness in tech shares. Both pared losses by midday, with the S&P down about 1% and the Nasdaq 1.3% lower. The Dow Jones Industrial Average slipped 0.6% to 40,291.44.

Fresh figures from the U.S. Bureau of Economic Analysis showed first-quarter real gross domestic product shrank by 0.3%, the first contraction since early 2022. The pullback was largely attributed to a spike in imports, which are subtracted in GDP calculations, along with reduced government spending.

The negative print came from a mix of higher tariffs and government belt-tightening, said Paul Stanley, chief investment officer at Granite Bay Wealth Management.

Morgan Stanley (MS) cautioned that while the initial reading was negative, two more revisions are due and could shift the outlook. It's too soon to call a recession, he added. More data will tell the full story.