U.S. stocks slipped Friday morning, led by a sharp decline in semiconductor shares, as a stronger-than-expected May jobs report dampened hopes for near-term interest rate cuts and raised the specter of potential tightening by the Federal Reserve.
The SPDR S&P 500 ETF Trust was last down 1.0% at $749.19, while the Invesco QQQ Trust, which tracks the Nasdaq, dropped about 2.1%. The Dow-focused DIA lost 0.3%. The VanEck Semiconductor ETF shed 4.7%, significantly underperforming the broader market.
The pullback came just after the S&P 500 touched a record 7,620.9 earlier this week. Data from EPFR showed U.S. equity funds attracted a net $7.43 billion in the week through June 3, their largest intake in three weeks, with technology funds alone pulling in $6.62 billion. That underscores the heavy investor conviction in AI-related stocks, but also left the sector vulnerable to disappointment.
According to the Labor Department, nonfarm payrolls rose by 172,000 in May, beating forecasts, with the unemployment rate holding at 4.3%. Gains were concentrated in leisure and hospitality, local government, and health care, while financial activities shed jobs. The department also revised up March and April figures by a combined 93,000 jobs.
Bond yields jumped on the news, with the two-year Treasury yield climbing 10 basis points to 4.15%, a key barometer of Fed policy expectations. Interest-rate futures now price in a 65% probability of a Fed tightening by December, up from 48% before the payrolls data, according to Reuters. "Inflation is still the binding constraint on rate cuts," said Jason Pride of Glenmede, while Peter Cardillo at Spartan Capital Securities called the report "an upside surprise."
Major chip names were among the hardest hit. Broadcom dropped 4.5% to $400.01, while Nvidia slid 3.7% to $210.51, adding to pressure on the semiconductor group that has been a key driver of Wall Street's 2026 rally. Broadcom reported fiscal Q2 revenue of $22.19 billion, up 48% year over year, and AI chip revenue of $10.8 billion, up 143%. CEO Hock Tan called it "record revenue, operating profit and free cash flow." However, both the revenue and AI chip sales forecast fell short of Wall Street expectations, according to Reuters. Tan also maintained his earlier long-term AI sales outlook without an increase. "The market demands perfection" for chip stocks to extend their run, said Ryan Lee of Direxion.
Other chip names including AMD and Micron also slipped, with investors taking profits after a sustained rally. "It's healthy for the market to pull back a little bit and slow down," said Mark Malek, chief investment officer at Siebert Financial. Charu Chanana, chief investment strategist at Saxo, noted that the issue is not a drying up of AI demand but rather that "expectations had become extremely high."
Selling was uneven, with some defensive sectors attracting bids. Six of the 11 main S&P 500 sectors traded higher, with consumer staples leading as money rotated out of technology. The 10-year Treasury yield rose to 4.54%, while oil prices held firm amid ongoing geopolitical tensions in the Strait of Hormuz and uncertainty over a U.S.-Iran ceasefire extension.
The session's key question is whether the AI trade can withstand the shift in rate expectations. A softer inflation reading could calm markets, but if yields continue to climb or another chip name fails to meet elevated expectations, the week's record high may prove to be a warning rather than a victory.
