Wall Street’s historic weekly run came to a halt, with stocks hit by a tech selloff and higher bond yields after a solid jobs report added to bets the Federal Reserve’s next interest-rate move will be a hike. The tech-heavy Nasdaq composite suffered its worst week in more than a year and the S&P 500 ended its nine-week run of Friday-to-Friday gains, its longest weekly winning streak since one that ended in December 2023.
Rising interest rates and the Iran war weighed on sentiment heading into the weekend, but many investors said they expected tech stocks to continue rallying.
The U.S. economy added 172,000 jobs in May according to the Labor Department, more than double analyst expectations, while the unemployment rate held firm at 4.3%. The robust report was double-edged: it provided reassurance of U.S. economic health, but all but killed any hopes of an interest rate cut from the Fed in the near future. (More on that below).
The concerted slide in stocks, bonds and crypto was the biggest setback in months for the latest leg of the bull market, which traces to the end of March when negotiations began in earnest to end the war in Iran. Concern has grown recently about the sustainability of an AI-fueled rally that had pushed the Philadelphia Semiconductor Index toward its best quarter ever. The tech selloff also followed an impressive earnings season for AI companies, with investors questioning whether growth rates have peaked
For the week, the Dow lost -0.3% to 50,867, the S&P 500 shed -2.6% to 7,384, the Nasdaq slumped by -4.7% to 25,709 and the Russell 2000 moved lower by -2.9% to 2,834. The CBOE Volatility Index, which traded at a year to date low last week, closed +40.4% higher at 20.51.
Buy When You Can, Not When You Have To!
Where have you heard that before? History certainly does repeat itself. The analaogy I often use is “buy your insurance when you don’t need it. The time to buy your homeowners insurance is not when you see the tornado coming!”
After the jobs report and probably some very heavy topiness in the market, the Nasdaq was pummelled and lost 4.2% on Friday. The Nasdaq was weighed down by a 6.2% decline in Nvidia stock and a 7.9% drop in Broadcom, whose relatively weak guidance on Wednesday spurred fears that AI demand may not grow as quickly as previously thought.
Friday’s carnage in tech stocks shows just how fragile this year’s rally has become. Tech names tied to AI remained under the heaviest pressure with Micron, Marvell, Intel, AMD, Qualcomm and ARM Holdings all down 10% or more. Fast-growing tech companies can be particularly exposed to higher rates because high bond yields decrease the value Wall Street assigns to companies projecting high profits far into the future.
So again – I’ll remind everyone… “Buy when you can, not when you have to!” Translated – that means buy market protection when volatility is low, when you have the chance, and not when the you know what hits the fan!
When Good is Not So Good!
The May jobs report was very solid, which ended up presenting a major problem for stock and bond markets. The employment report was indeed a bit of a stunner. US job growth topped all forecasts in May and the unemployment rate held steady at 4.3%, offering the clearest sign yet that the labor market may be breaking out of a prolonged period of lackluster hiring.
Nonfarm Payrolls rose by a whopping 172,000, well above the 88,000 consensus estimate. Even more surprisingly, April’s figure was raised to 179,000 from 115,000, and the two-month revision of +93,000 implied that March was raised by another 29,000.
There was a lot to like in this report but the figures came at a time when inflation risks are challenging the Fed. Aren’t we supposed to be cheering for more jobs and for more people working?
Bonds sold off sharply on the robust jobs report, the dollar strengthened and chances for a rate HIKE this year soared! Just a few months ago, the prevailing opinion was that the Federal Reserve would be dealing with an uncomfortable dilemma that pitted both parts of their dual mandate against each other. The jobs market was perceived to be weakening sufficiently to require Fed intervention, but inflation remained above their target. That is why we have seen rate cut expectations evaporate and morph into expectations for a hike. Friday’s report removes any conflict. If labor is strong and the stalemate in the Strait of Hormuz continues to bring price pressures, that removes an obstacle for rate hikes.
And boy did the markets take the good news and turn it bad. On Thursday, Fed Funds futures priced in a 52% probability for a rate hike by Decmeber. After the NFP report it is now pricing in nearly a 100% probability. Stocks have been consistently able to shrug off expectations for higher short-term rates for several weeks. So, why the major shift on Friday?
Economic Reports of Note (All Times EST):
Monday
11:00 am – US: NY Fed 1-Year Consumer Inflation Expectations
11:30 am – US: 3 & 6-month Bill Auctions
Tuesday
6:00 am – US: NFIB Small Business Optimism
8:30 am – US: Trade Balance
8:55 am – US: Redbook
10:00 am – US: Existing Home Sales
10:00 am – US: Wholesale Inventories
11:30 am – US: Atlanta Fed GDPNow
1:00 pm – US: 3-year Note Auction
Wednesday
7:00 am – US: Mortgage Data
8:30 am – US: CPI
8:30 am – US: Real Earnings
9:45 am – CAN: Bank of Canada Interest Rate Decision
10:30 am – US: Crude Oil Inventories
11:00 am – US: Cleveland CPI
1:00 pm – US: 10-year Note Auction
2:00 pm – US: Federal Budget Balance
Thursday
6:00 am – US: OPEC Monthly Report
8:15 am – EU: ECB Interest Rate Decision
8:30 am – US: PPI
8:30 am – US: Weekly Jobless Claims
11:30 am – US: 4 & 8-week Bill Auctions
1:10 pm – US: FOMC Member Daly Speaks
Friday
10:00 am – US: Michigan Consumer Sentiment
10:00 am – US: Michigan Inflation Expectations
