U.S. markets face chip selloff, rate pressure and oil risk

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U.S. markets face chip selloff

Highlights

SOX semiconductor index drops 10% Friday, Broadcom falls 20% over two sessions, and Nasdaq loses about 4% heading into the weekend.
May U.S. payrolls rise by 172,000, unemployment holds at 4.3%, raising expectations of an almost 80% chance of a Fed rate hike by year-end.
Missile strikes between Iran and Israel push crude oil prices up more than 4%, as European markets brace for an ECB rate increase Thursday.

Chip losses deepen market reset

As reported by Reuters, Wall Street is bracing for further volatility after Friday's heavy chip-sector selloff spills into Asian and European trading on Monday. The retreat follows Broadcom's earnings disappointment, the end of the S&P 500's nine-week winning streak and stronger expectations that the Federal Reserve will keep policy tighter for longer.

The SOX semiconductor index drops 10% on Friday alone, while Broadcom falls 20% over two sessions and the Nasdaq is down about 4% heading into the weekend. Futures attempt an early rebound on Monday, but technology-heavy markets in Asia slide sharply and Europe's STOXX 600 falls to a two-week low.

Investors are also preparing for the expected SpaceX IPO on Friday. Analysts say a summer wave of listings may be absorbed by a record pace of buybacks, but planned equity issuance by major AI-focused hyperscalers adds to concern after Alphabet announces $80 billion in new equity sales and reports suggest Meta may also follow.

Jobs strength, oil surge and policy risks

The U.S. labor market remains a central driver of the latest repricing. Payrolls increase by 172,000 in May, well above forecasts, prior months are revised up by 93,000 combined, and the unemployment rate holds at 4.3% for a third straight month.

That jobs strength reinforces concerns that the economy is running too hot, especially as estimates suggest monthly job creation of only zero to 50,000 is needed to match growth in the working-age population after tighter immigration policy over the past year. Markets now price an almost 80% chance of a Fed rate hike by year-end and nearly two hikes over the next 12 months, sending Treasury yields higher.

At the same time, direct missile strikes between Iran and Israel over the weekend lift crude oil prices more than 4% and cloud hopes for a broader peace deal that could ease supply constraints. In Europe, investors are also positioning for a long-awaited European Central Bank rate rise on Thursday, while the dollar strengthens against the euro as the U.S. rate outlook turns more hawkish.

In our earlier coverage of the May U.S. jobs report-driven sell-off, we explained how the upside payroll surprise pushed Treasury yields higher and revived expectations for one or two additional Fed rate hikes. We also noted that higher borrowing costs were hitting richly valued AI and semiconductor names hardest, while talk of fresh equity raises by major tech platforms added to worries about growing share supply during the AI investment boom.

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