Nasdaq, S&P 500 Suffer Worst Day Of Year: Why Did US Stocks, Bonds, Bitcoin And Gold Fall Together?

Global financial markets witnessed a broad-based sell-off on Friday, with investors dumping US stocks, bonds, bitcoin and even gold after stronger-than-expected US jobs data raised concerns that the US Federal Reserve may keep interest rates higher for longer, or even consider another rate hike later this year.

The sharp reaction highlights a paradox often seen in financial markets: good economic news can sometimes be bad news for investors.

Wall Street Suffers Sharpest Fall In Months

The benchmark S&P 500 index dropped 2.64%, marking its worst single-day performance since October and snapping a nine-week winning streak. The technology-heavy Nasdaq Composite tumbled 4.18%, its steepest decline since April 2025, while the Dow Jones Industrial Average lost 695 points, or 1.35%.

Market volatility

also surged. The CBOE Volatility Index (VIX), often referred to as Wall Street’s “fear gauge”, jumped 40% to its highest level in two months.

Strong Jobs Data Changes Interest Rate Expectations

The trigger for the market sell-off was a surprisingly strong US employment report. Data released by the US Bureau of Labor Statistics showed that the American economy added 172,000 jobs in May, significantly exceeding market expectations.

The report comes at a time when investors were already worried about inflationary pressures stemming from higher oil prices following the Iran conflict.

A resilient labour market reduces the urgency for the Federal Reserve to cut interest rates. Instead, policymakers may focus more aggressively on controlling inflation.

According to CME FedWatch data cited by CNN, traders are now assigning a 43% probability of a Fed rate hike in December, compared with just 26% a month ago.

Why Markets Fear Higher Interest Rates

Higher interest rates increase borrowing costs across the economy and generally reduce the attractiveness of riskier assets such as equities and cryptocurrencies.

“In the near term the data confirms that Fed easing is off the table this year, and markets continue to worry that the next move could be a hike,” James McCann, senior economist for investment strategy at Edward Jones, said in a note, according to CNN.

US Treasury yields rose sharply after the jobs report. The benchmark 10-year Treasury yield climbed to 4.54%.

Rising bond yields tend to put pressure on stock valuations, particularly in the technology sector where future earnings play a significant role in determining company valuations.

AI Stocks Lead The Market Decline

Technology and artificial intelligence-related stocks bore the brunt of the selling pressure. The Nasdaq has now fallen for three consecutive sessions after recently enjoying a powerful rally.

Investor sentiment towards AI stocks weakened further after semiconductor giant Broadcom issued weaker-than-expected guidance for chip revenue.

Broadcom shares fell nearly 13% on Thursday and another 8% on Friday, raising concerns that expectations surrounding the AI boom may have become too optimistic.

“A parabolic move like most of these stocks have been experiencing is not sustainable under perpetuity,” Ross Mayfield, investment strategist at Baird, told CNN.

“You’re pricing in basically perfection, and I think the Broadcom results, and kind of underwhelming guidance, are an example of that,” Mayfield said. “It doesn’t take a lot to spark a reversal.”

Shares of Meta Platforms also extended losses after reports suggested the company was exploring equity fundraising options to support its growing AI investments.

Bitcoin Slips Below $60,000

The risk-off mood was not limited to equities. Bitcoin plunged more than 5% and briefly fell below the $60,000 mark, touching its lowest level since October 2024.

The world’s largest cryptocurrency has now lost more than 17% this week and is down over 50% from its record high reached last year.

Investors often reduce exposure to speculative assets such as cryptocurrencies when interest rate expectations rise.

Gold Also Loses Its Shine

Traditionally considered a safe-haven asset, gold was unable to escape the sell-off. Gold prices dropped more than 3.5%, effectively wiping out their gains for the year.

Analysts note that higher interest rates make non-yielding assets such as gold less attractive because investors can earn better returns from interest-bearing securities.

What Happens Next?

Despite the market’s fears, economists caution that the Federal Reserve is not yet certain to raise rates. McCann noted that policymakers would likely need to see evidence of a more sustained inflation surge before moving toward another tightening cycle.

“However, new Fed Chair (Kevin) Warsh will face a challenging balancing act at his first meeting given the complicated balancing act facing Fed policy at present and well-documented divisions on the FOMC rate-setting committee,” McCann added, according to CNN.

Nigel Green, CEO of deVere Group, summed up the market reaction by saying:

“Markets have spent months searching for a reason for the Federal Reserve to cut rates. Today’s jobs report gave policymakers a reason not to do so.” “One report does not make policy, but a report of this magnitude changes probabilities. And markets have recognized that immediately.”