$2 Trillion Wiped Out In Hours: What Triggered Bloodbath In US Stocks Markets?

US stock markets suffered a sharp selloff on Friday, wiping out nearly $2 trillion in market value as stronger-than-expected jobs data fueled fears that the Federal Reserve may keep interest rates higher for longer.

On Wall Street, all three major indexes ended lower, led by heavy selling in technology shares. The Dow Jones Industrial Average fell 1%, the S&P 500 lost 2.4%, while the Nasdaq Composite plunged 4%.

The so-called “Magnificent Seven” stocks, including Nvidia, Alphabet and Meta Platforms, all closed in the red. Broadcom tumbled nearly 7%, extending losses after the semiconductor giant reported underwhelming results earlier this week.

What Triggered Friday’s Bloodbath?

The market selloff was triggered by a surprisingly strong US jobs report, which raised concerns that

the Federal Reserve may delay rate cuts and could even consider another rate hike later this year.

Data released on Friday showed that US employers added 172,000 jobs in May, significantly above economists’ expectations of 80,000.

The report reinforced the view that the US economy remains resilient despite higher borrowing costs and rising energy prices linked to the Middle East conflict.

Bond Yields Surge After Strong Jobs Data

Treasury yields jumped immediately after the employment report, reflecting changing expectations about the path of US interest rates.

The yield on the two-year Treasury note, which is particularly sensitive to Federal Reserve policy, climbed to a 15-month high of 4.16%.

Higher bond yields typically hurt technology stocks because future earnings become less valuable when discounted at higher interest rates.

Fed Rate Cut Hopes Take A Hit

Investors had been betting that cooling inflation would allow the Federal Reserve to begin cutting rates in the coming months.

Friday’s jobs data cast fresh doubt on that narrative.

“We’re talking about a strong economy,” said Gary Schlossberg, market strategist at Wells Fargo Investment Institute.

“That just adds to inflation risk coming from the Gulf. It makes it difficult for the Fed to even think about rate cuts and might even increase the chances — although we’re still not forecasting that yet — of a rate hike before the end of the year.”

The jobs report also showed that payroll figures for the previous two months were revised upward by a combined 93,000 jobs, further underscoring the strength of the labour market.

Why Tech Stocks Were Hit The Hardest?

Technology and AI-related stocks have been among Wall Street’s biggest winners over the past two years, driven by enthusiasm around artificial intelligence and expectations of lower interest rates.

Friday’s surge in bond yields prompted investors to lock in profits in some of the market’s most richly valued companies.

Nvidia, Alphabet, Meta and other AI-linked stocks led the decline as traders reassessed whether current valuations can be justified if borrowing costs remain elevated.

Inflation Concerns Return To Wall Street

The stronger-than-expected jobs report comes at a time when investors are already worried about rising energy prices due to tensions in the Middle East.

According to eToro analyst Bret Kenwell, the employment data was positive for the economy but potentially negative for markets.

“While the figures are good news for the US economy, borrowers and investors may feel differently,” he said.

Kenwell said a rapid resolution of geopolitical tensions and lower oil prices could ease inflation concerns. However, any signal that the Fed is turning more hawkish could put further pressure on stocks.

“If policymakers even start talking about rate hikes or taking a more hawkish posture, that could throw cold water on the recent stock market surge,” he said.

(with inputs from AFP)