Wall Street plunges on tech selloff as Fed rate hike odds surge

Friday's close on Wall Street arrived like a reckoning. The S&P 500 dropped 199.64 points—a 2.63% slide that marked the worst day since October and snapped nine consecutive weeks of gains, the longest winning streak since December 2023. The Nasdaq fell harder, shedding 1,117.38 points, or 4.16%, while the Dow Jones Industrial Average retreated 684.53 points, a 1.33% decline. The market had been riding high on technology and semiconductors. By Friday afternoon, that momentum had reversed entirely.

The culprit was a jobs report released that morning by the U.S. Department of Labor. May had brought 172,000 new non-farm payrolls—well above April's 115,000 and far exceeding the 85,000 economists had predicted in a Reuters survey. Strong employment data, in ordinary times, would be cause for celebration. But these are not ordinary times. The report effectively erased any lingering hope that the Federal Reserve might cut interest rates. Ronald Temple, chief market strategist at Lazard, put it plainly: the solid employment numbers had eliminated "any hope of a Fed rate cut" in a research note that morning.

The bond market moved swiftly. The 10-year Treasury yield climbed to 4.54% from 4.50% just before the jobs data hit. The 2-year Treasury, which tracks Fed decisions more closely, jumped to 4.16% from 4.04%. Money markets now assigned a probability above 60% that the Fed would raise rates before year's end, according to CME FedWatch data. There was no longer any expectation of a cut. The timing added pressure: Kevin Warsh, the Fed's new chair, is scheduled to preside over his first policy meeting on June 16 and 17. Most analysts expect rates to hold steady then, though President Donald Trump has been pushing for lower borrowing costs.

The selling concentrated in technology, the very sector that had powered the recent rally. Nvidia fell 6.3%. Broadcom dropped 7.6%. Micron Technology plunged 12.7%. Ryan Detrick, chief market strategist at Carson Group, described it as a breaking point: "After the record run we've seen over the last nine weeks in equities, specifically in tech and semiconductors, the dam broke today." Meta shares fell 6% after reports surfaced that the company might issue new stock to finance artificial intelligence infrastructure spending. Lululemon sank 8.5% following a cut to its revenue and earnings guidance.

Oil markets moved in the opposite direction, driven by optimism over diplomatic talks between Washington and Tehran. Brent crude for August delivery fell 2.04% to $93.09 per barrel on the Intercontinental Exchange in London. West Texas Intermediate for July delivery lost 2.69%, closing at $90.54. The declines reflected market expectations of an imminent agreement that would reopen shipping through the Strait of Hormuz, which had been effectively blocked by regional conflict. Analysts at ING noted that current prices suggest the market anticipates "an imminent accord allowing the resumption of flows" through the strait. President Trump had suggested negotiations could conclude "this weekend."

Yet the oil picture remains complicated. David Morrison, an analyst at Trade Nation, noted that despite Middle East uncertainty, oil prices remain well below the highs reached after U.S. and Israeli strikes on Iran in late February. Brent had traded around $70 per barrel before the conflict began. Forex analyst Fiona Cincotta warned that the real question for oil markets is not whether negotiations continue, but whether they result in a significant increase in supply. As long as the strait remains closed, traders will continue pricing in geopolitical risk, she wrote, while supply constraints tighten global reserves and make prices "more sensitive to any escalation" in the region.

Inflation has complicated the Fed's position further. A preferred inflation measure showed prices rose 3.8% in April, the largest increase in two years—driven partly by energy costs. That backdrop makes any monetary easing far more difficult to justify. Meanwhile, new tensions have emerged. Naim Qasem, leader of the Iranian-backed group Hezbollah, rejected a ceasefire agreement announced in Washington and demanded the complete withdrawal of Israeli forces from Lebanon. Tehran claimed Friday it had fired "warning missiles" at two American vessels in the Oman Sea, a claim Washington denied. The U.S. military also announced the seizure of a sanctioned tanker in the Indian Ocean that had been carrying Iranian crude. Investors are banking on the Israel-Lebanon truce to allow suspended Iran negotiations to resume, but the path forward remains uncertain and fragile.