Wall Street faced a mixed open on Friday, with the S&P 500 and Nasdaq declining sharply after the May jobs report came in stronger than anticipated, reigniting concerns about further interest rate hikes. The Dow Jones Industrial Average managed a slight gain, but selling pressure was concentrated in large-cap growth stocks, particularly in the semiconductor sector.
The Labor Department reported that nonfarm payrolls increased by 172,000 in May, well above the 85,000 forecast by economists polled by Reuters. The unemployment rate held steady at 4.3%. Additionally, payroll figures for March and April were revised upward by a combined 93,000. This robust data has shifted market expectations for Federal Reserve policy, with interest-rate futures now pricing in a 65% chance of a rate hike in December, up from 48% before the release, according to LSEG data cited by Reuters.
The S&P 500 fell 0.6% to 7,539.32 shortly after the opening bell, while the Nasdaq Composite dropped 1.1% to 26,550.03. The Dow eked out a small gain, rising to 51,566.60, according to Investing.com. Reuters reported that the S&P lost 47 points and the Nasdaq shed 294.4 points, while the Dow added 48.1 points.
Job growth was broad-based, with leisure and hospitality adding 70,000 positions, local government up 55,000, and health care gaining 35,000. Financial activities, however, lost 22,000 jobs. Average hourly earnings rose 0.3% month-over-month and 3.4% year-over-year, indicating persistent wage pressures.
Bonds sold off as a result, with the two-year Treasury yield—sensitive to Fed policy expectations—jumping 10 basis points to 4.15%. The 10-year yield rose 6 basis points to 4.54%. “The Fed’s calculus is unchanged,” said Jason Pride, chief of investment strategy and research at Glenmede, noting that inflation remains the primary constraint on rate cuts.
Chip stocks were a major drag on the market. Broadcom (AVGO) extended its decline, falling another 4% by 10 a.m. ET, following a drop on Thursday. Advanced Micro Devices (AMD), Intel (INTC), and Micron (MU) each lost between 6% and 7%. Broadcom reported a 48% surge in second-quarter revenue to $22.187 billion, but the figure missed analysts’ expectations. CEO Hock Tan stated “The momentum continues,” and the company maintained its AI semiconductor revenue forecast of $16 billion for the third quarter. However, investors were disappointed that Broadcom did not raise its $100 billion AI revenue target for fiscal 2027. Matt Britzman at Hargreaves Lansdown described it as “a classic case” of the market hoping for perfection.
Some strategists believe the jobs data presents a greater challenge for the Fed than for economic growth. Lindsay Rosner at Goldman Sachs Asset Management characterized the current stance as “not move: HOLD.” Ellen Zentner at Morgan Stanley Wealth Management noted that the stronger payrolls number is likely to keep markets “focused on inflation pressures.”
The outlook remains uncertain. If payroll growth cools or inflation eases, the tech selloff could reverse. Conversely, if the data pushes the Fed toward a more hawkish stance, Stephen Coltman at 21Shares warned it would be a “difficult transition” for markets.
