Key Takeaways:
A hawkish Federal Reserve, persistent inflation and mounting skepticism over artificial-intelligence profits triggered the worst weekly selloff in technology stocks since 2024.
The S&P 500 and Nasdaq Composite fell for five consecutive sessions through Friday, losing about 2% and 4.6% respectively, as hawkish Fed signals and AI profit doubts upended the year's dominant trade. The declines marked the first five-day losing streak for both indexes since April 2024.
"The combination of higher-for-longer rates and questions about AI monetization creates a challenging setup for the growth side of the market," said Jim Baird, chief investment officer at Plante Moran Financial Advisors.
The Dow Jones Industrial Average bucked the trend, gaining 0.6% for the week and closing within 0.2% of its all-time high at 51,876.11. The S&P 500's healthcare sector surged 7.9% to a record, with Johnson & Johnson adding more than 11% in its best week since October 2008 and crossing $600 billion in market value for the first time. Utilities rose 3.9% and consumer staples added 1.5%, while the PHLX Semiconductor Index tumbled 7.9% for its worst week in over a year. Nvidia slumped 8.6%, erasing $439 billion in market capitalization, and Broadcom fell 11%.
The rotation out of technology into defensive sectors reflects a market repricing of rate expectations after Fed Chairman Kevin Warsh's hawkish debut on June 17. Traders now see a 64% probability of a quarter-point rate hike by September, according to CME FedWatch data, after the Fed's preferred inflation gauge hit 4.1% in May — more than double the 2% target. Bank of America economists said they expect three quarter-point rate increases this year.
Tech Selloff Deepens on AI Spending Concerns
The selloff accelerated this week after a New York Times report that OpenAI may delay its initial public offering until 2027, casting doubt on the public market's appetite for high-flying AI stocks. The news dragged on memory-chip makers that had rallied after Micron Technology's blockbuster earnings, with Western Digital dropping 10% and Seagate Technology and Sandisk each shedding 7%.
Apple fell more than 6% on Thursday in its worst day in over a year after raising prices on iPads and MacBooks to offset surging memory costs. Microsoft touched a 52-week low before rebounding 5% on Friday. SpaceX shares briefly dipped below their opening-day price of $150 before closing at $153.23, up 0.2%.
The Cboe Volatility Index climbed 6.9% to 20.20, its highest level in months, as traders piled into hedges. The S&P 500 equal-weight index outperformed the market-cap-weighted benchmark by the widest weekly margin since 2020, underscoring the narrowness of the damage.
Cross-Asset Spillover
The 10-year Treasury yield ticked down to 4.37% from 4.39% after the May PCE reading matched expectations, though yields remain elevated relative to March levels. West Texas Intermediate crude fell 8.7% for the week to $69.23 a barrel, returning to prewar levels as the U.S.-Iran conflict showed signs of de-escalation. Brent crude slid 11% to $71.99. Gold futures rose 1.5% to $4,100 a troy ounce, while the U.S. dollar index slipped 0.2% to 101.20.
Bitcoin traded near $60,000 after briefly touching its lowest level since 2024, with the CoinMarketCap Crypto Fear and Greed Index flashing "extreme fear."
Some strategists argue the selloff is a correction within a broader bull market rather than the start of a sustained downturn. Barclays raised its year-end S&P 500 target to 7,800, citing strong earnings growth. Companies in the index are expected to post 24% profit growth in 2026, according to FactSet.
"The market is rotating, not breaking," said Christian Chan, chief investment officer at AssetMark. "Earnings growth remains robust enough to support equities even if rates stay higher for longer."
The next major test comes July 14, when the June CPI report is released. A soft reading could ease rate-hike fears and reignite the tech rally, while a hot print would reinforce the hawkish narrative that drove this week's selloff.
This article is for informational purposes only and does not constitute investment advice.
