Key facts
- US stock market experienced its worst day since October.
- S&P 500 fell 2.6%, its biggest one-day drop since October 10.
- Nasdaq Composite slumped 4.2%.
- Tech stocks led the decline, with Nvidia down 6.2% and Meta down 5.5%.
- A strong US jobs report increased expectations that the Federal Reserve may hike interest rates.
- Bond yields rose significantly following the jobs report.
The U.S. stock market experienced its worst day since October on Friday, with a significant sell-off in technology companies dragging down the broader market. The S&P 500 declined 2.6%, its largest single-day drop since October 10, while the Nasdaq Composite slumped 4.2%. This downturn interrupted a two-month rally and marked the benchmark index's first losing week in ten. Tech stocks, which had previously powered market records, were notably weak, with Nvidia falling 6.2%, Broadcom dropping 7.9%, and Micron Technology sliding 13.3%. Meta's shares decreased by 5.5%. The market's decline was exacerbated by a surprisingly strong jobs report, which added 172,000 jobs in May, diminishing expectations for a Federal Reserve rate cut and increasing the likelihood of a rate hike by year-end. Bond yields surged in response, with the 10-year Treasury yield rising to 4.54% and the 2-year Treasury yield jumping to 4.16%. Analysts noted that the strong employment data effectively eliminated hopes for an imminent Fed rate cut. The sell-off occurred despite generally positive corporate earnings reports, with Lululemon being an exception, dropping 8.6% after trimming its revenue and profit forecasts. The article also notes that Bitcoin has fallen significantly, and that current stock valuations, such as the Shiller CAPE ratio at 42.7x and the Buffett Indicator at 237%, are historically high, suggesting that the recent sell-off is a minor event in the context of extreme valuations. The author suggests that the Federal Reserve may be 'stuck' between fighting inflation and risking economic slowdown, and that the assumption of a Fed bailout may be outdated.