Stock Market Plunges as Tech Leads Selloff, Rate Hike Expectations Rise
U.S. stocks suffered their biggest decline since April 2025 after strong jobs data sparked fears of further Federal Reserve rate increases, with the Nasdaq dropping 4% and chip stocks losing nearly 9%.
Market Decline
The tech-heavy Nasdaq Composite lost 4% for its biggest decline since the tariff turmoil of early 2025. The Nasdaq lost 4.18% and closed at 25,709.43 for its biggest drop going back to April 2025. The semiconductor index declined nearly 9%. The Nasdaq Composite suffered a massive decline on Friday. The tech-heavy index dropped 4.18% to end the day at 25,709.43.
Catalyst and Context
Friday's tech drop came after the Bureau of Labor Statistics reported that nonfarm payrolls increased by 172,000 in May, well above the 80,000 jobs that economists polled by Dow Jones had expected to be added. The catalyst for the chip turn this week was unclear. Some disappointment in Broadcom's failure to raise its AI chip outlook Wednesday night caused the group to lose ground on Thursday.
Sector Rotation
Investors rotated into healthcare and staples stocks on Friday as they dumped tech shares. Colgate-Palmolive added 4%, and Coca-Cola was up more than 3%. Johnson & Johnson was up 2%. Defensive areas of the market held up better, with consumer staples and other defensive sectors finishing higher and providing a partial offset to the tech-led weakness.
Rate Expectations Shift
Odds of an interest rate hike coming later this year rose Friday, after an unexpectedly strong jobs report weakened expectations for further easing. The total probability of interest rates rising by the end of this year jumped to 72.7% on Friday, up from 50.5% one day prior.