Key facts
- Global stock markets experienced significant declines across Asia, Europe, and the U.S.
- Fears of Federal Reserve rate hikes resurfaced following strong U.S. jobs data.
- South Korea's KOSPI index plunged over 8%, its worst performance this year.
- The Nasdaq Composite recorded its largest one-day point drop on record, falling over 1,121 points.
- The S&P 500 lost an estimated $1.8 trillion in market value.
- Broadcom's shares tumbled over 12% after disappointing AI chip sales forecasts.
- Nvidia fell 6.2% and Meta down 5.5% amid the tech sell-off.
- Bitcoin prices dropped significantly, mirroring the decline in technology stocks.
- Middle East tensions and rising oil prices contributed to market volatility.
- Citigroup raised its year-end target for the S&P 500 index to 8,100.
Global stock markets experienced widespread declines, with major indexes in Asia, Europe, and the U.S. falling amid renewed fears of Federal Reserve interest rate hikes, a tech sector sell-off, and geopolitical tensions. South Korea's KOSPI index led the downturn, plunging over 8% and marking its worst performance this year, mirroring a Wall Street selloff in technology stocks. The Japanese Nikkei 225 dropped 1.34%, and Australia's ASX 200 fell 0.51%. European shares also slipped, with the STOXX 600 down 0.3% on Friday and 0.5% for the week, reaching a two-week low.
In the U.S., the Nasdaq Composite experienced its largest one-day point drop on record, falling over 1,121 points, while the S&P 500 saw its market value decrease by an estimated $1.8 trillion. The S&P 500's nine-day winning streak concluded, and it is now at risk of ending. Technology and chip stocks were particularly hard hit, with Broadcom's shares tumbling over 12% after disappointing results and AI chip sales forecasts. Nvidia fell 6.2% and Meta down 5.5%. Cooling enthusiasm for AI trades contributed to the decline, with assets in AI-focused leveraged ETFs doubling in two months, indicating a significant bet on the sector. Foreign investors became net sellers of Japanese stocks, ending a two-month buying streak, due to concerns over a potential bubble in AI-related stocks. Bitcoin also dropped significantly, mirroring the tech stock decline.
The market downturn was largely triggered by stronger-than-expected U.S. jobs data for May, which showed 172,000 jobs added, increasing rate hike odds to 68.3% and reinforcing expectations of Federal Reserve policy tightening. The European Central Bank is also pricing in a 25-basis-point hike next week. Rising oil prices and Middle East tensions, including a new target date set by Trump concerning Hormuz, added to market volatility. Despite the broad sell-off, the Dow Jones Industrial Average reached a record closing high before reversing some gains, and the S&P 500 had previously extended its winning streak to nine days, reaching a new record high above 7600, driven by the AI boom and hopes for conflict resolution.
Looking ahead, Citigroup has raised its year-end target for the S&P 500 index to 8,100 from 7,700, citing strong corporate earnings and a potential AI-driven capital expenditure supercycle. However, caution is advised due to geopolitical risks and potential Fed policy shifts. The market is beginning to differentiate between companies that can meet high expectations and those where the bar has become too high. Investors await key inflation data and further economic insights from upcoming payrolls data.