U.S. stock markets closed sharply lower on Friday following large-scale profit-taking on AI-powered semiconductor stocks. Strong jobs data, growing fear of the return of higher interest rates by the Fed and a spike in the yield of government bonds forced investors to book profits on highly overstretched valued AI stocks. All three major stock indexes plummeted significantly. For the last week, these indexes ended in negative territory too.
How Did the Benchmarks Perform?
The Dow Jones Industrial Average (DJI) fell 1.4% or 695.15 points to close at 50,866.78 after a choppy session. Notably, 16 components of the 30-stock index ended in positive territory while 14 ended in negative territory. At intraday high, the blue-chip index was up 98.47 points.
The tech-heavy Nasdaq Composite finished at 25,709.43, plummeting 4.2% or 1,121.53 points due to the disappointing performance by AI semiconductor giants. The tech-laden index recorded its worst single-day performance since April 2025.
The S&P 500 slid 2.6% or 200.57 points to finish at 7,383.74. Eight out of 11 sectors of the broad-market index ended in positive territory while three ended in negative territory.
The Health Care Select Sector SPDR (XLV), the Financials Select Sector SPDR (XLF), the Real Estate Select Sector SPDR (XLRE) and the Industrials Select Sector SPDR (XLI) rose 3.1%, 2.6%, 2.1% and 1.2%, respectively. On the other hand, the Information Technology Select Sector SPDR (XLK) fell 1.6%.
The fear gauge CBOE Volatility Index (VIX) soared 39.7% to 21.51. A total of 22.89 billion shares were traded on Friday, higher than the last 20-session average of 20.29 billion. Decliners outnumbered advancers on the NYSE by a 3.14-to-1 ratio. On the Nasdaq, a 3.48-to-1 ratio favored declining issues.
Strong Jobs Data
The Department of Labor reported that the nonfarm payrolls in May came in at 172,000, significantly above the Zacks Consensus Estimate of 92,000. The metric for April was revised upward to 179,000 from 115,000 reported earlier. The data for March was also revised upward by 29,000.
The unemployment rate for May came in at 4.3%, in line with the Zacks Consensus Estimate and April’s data. The real unemployment rate (including discouraged workers and the underemployed) fell 0.1% month over month to 8.1%.
The average hourly earnings rate rose to 0.3% in May from 0.2% in April. The Zacks Consensus Estimate was also 0.3%. Year over year, the average hourly wage rate increased 3.4% in May. Average workweek stayed the same at 34.3 in May. The labor force participation rate was also the same at 61.8%.
AI Chip Stocks Plunge
The strong jobs data along with the solid fundamentals of the U.S. economy, which grew at 1.6% in first-quarter 2026, raised concerns that the Fed is unlikely to cut the benchmark interest rate anytime soon this year. The sticky inflation rate is still a major concern for the central bank.
In fact, the CME FedWatch interest rate derivative tool currently shows that there exists more than 50% probability that the Fed will hike the Fed fund rate by the end of this year. Moreover, to make the situation worse, the yield on the benchmark 10-Year U.S. Treasury Note and 30-Year U.S. Treasury Note climbed above 4.5% and 5%, respectively.
A higher risk-free market interest rate is highly detrimental to the growth of AI-centric companies that need huge amounts of money to cope with an ever-changing competitive world. Consequently, stock prices of major AI chip and memory developers such as, Broadcom Inc.AVGO, Advanced Micro Devices Inc. AMD, Marvell Technology Inc.MRVL and Micron Technology Inc. MU plunged 7.9%, 10.9%,16.7% and 13.3%, respectively. Micron currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Weekly Roundup
Last week was quite disappointing for Wall Street. The S&P 500 fell 2%, posting its first negative week in last 10 weeks. The Nasdaq Composite tumbled 4.7%. The Dow lost 0.3%.
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