As of 12.20, the S&P 500 (^GSPC 2.04%) had fallen 1.60% to 7,463.24, the Nasdaq Composite (^IXIC 3.23%) slid 2.65% to 26,122.36, and the Dow Jones Industrial Average (^DJI 0.92%) slipped 0.74% to 51,182.31 as a hot jobs report drove a risk-off sentiment.
Market movers
Artificial intelligence (AI) and chip bellwethers led declines this morning as Nvidia (NVDA 5.58%), Advanced Micro Devices (AMD 9.92%), and Micron Technology (MU 10.49%), all dropped on fresh doubts around lofty valuations. Broadcom (AVGO 6.82%)extended yesterday’s post-earnings declines.
What this means for investors
Strong jobs data triggered a broad stock sell-off today, with the tech-heavy Nasdaq taking the biggest hit. Payrolls increased by 172,000 in May — well above the expected 80,000 — and the unemployment rate remained steady at 4.3%.
The reason markets fell on the report, which showed resilience in the labor market, is that it increased the likelihood of a Federal Reserve rate hike this year. Economists now think there’s a 70% probability of interest rates rising in December, if not before. High interest rates make borrowing more expensive, which can pressure consumer demand and corporate growth, creating headwinds for stocks.
This morning’s broad drops suggest the recent rally may be losing steam, but pull-backs are part of every market. That said, investors may want to consider what impact higher-for-longer interest rates might have on their portfolios, and evaluate exposure to sectors like banking, which sometimes do better when rates are high.
Emma Newbery has positions in Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Broadcom, Micron Technology, and Nvidia. The Motley Fool has a disclosure policy.
