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Good Morning!
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Now let’s break down what actually moved markets this past week and what to watch next.
Market Recap
This was a wild week that started with records and ended with a violent selloff. After a strong start that pushed major indexes to fresh all-time highs, a brutal late-week reversal in technology stocks wiped out the gains and reminded investors just how stretched parts of this market had become.
The week opened with momentum intact. The S&P 500 finished above 7,600 for the first time ever on Tuesday as the chip boom continued to drive the market higher. The AI trade that has powered this rally all year was firing on all cylinders, and energy and technology names lifted the indexes through midweek.
Then the mood turned sharply. The trigger was a combination of disappointing forward guidance from a major chip supplier and a fundamental rethink of how much money is being poured into AI. A disappointment in one large chipmaker's failure to raise its AI chip outlook caused the group to lose ground on Thursday, and Friday's selling reached a new level of intensity. The tech-heavy Nasdaq lost more than 4% on Friday for its biggest decline since the tariff turmoil of early 2025, while the S&P 500 dropped 2.64% and the Dow fell 695 points. The selloff was severe enough to wipe roughly $1 trillion from the market, and the VIX, Wall Street's fear gauge, careened 34% higher to finish above 20. The weakness spread globally overnight, with South Korea's market plunging more than 5% as the slump in Wall Street tech names spread into Asia.
The other major catalyst was the May jobs report, which landed Friday morning and added fuel to the selloff in an unusual way. Nonfarm payrolls increased 172,000 in May, with hiring in March and April revised higher, marking the strongest three-month advance in more than two years. Unemployment held at 4.3%, and the figure roughly doubled the consensus expectation. Normally a strong jobs report is good news. But in the current environment, it played out as a classic "good news is bad news" scenario. Treasury yields rose sharply and stocks slid as the strong labor data pushed rate hike odds higher. A resilient labor market gives the Fed even less reason to cut rates, and with inflation already running hot, some traders are now pricing in the possibility of a hike before year end.
Underneath the drama, there was actually good news on the energy front this week, which is the key to the inflation picture. Oil has tumbled roughly 20% from its 2026 highs on growing optimism over a lasting U.S.-Iran ceasefire deal, with crude posting its worst month since the pandemic in May. That decline, if it holds, should eventually filter through to lower inflation readings and relief at the pump. For now, though, the market was far more focused on the tech unwind and rising yields than on the improving oil story.
The bottom line on the week: the AI trade finally hit a wall, the labor market is stronger than expected, and yields are climbing again. The energy picture is genuinely improving, but that was drowned out by a sharp repricing of the most crowded trade in the market.
What's Coming Next Week
The single biggest event is the May inflation report. The Consumer Price Index for May is scheduled for release Wednesday, June 10. This is the most important data point on the calendar. After Friday's strong jobs report sent yields higher, a hot CPI reading could deepen fears that the Fed is stuck or even leaning toward a hike, which would put more pressure on stocks. A cooler number, especially one reflecting the recent drop in oil, would be a major relief and could help stabilize the market after this week's turmoil.
The technology and chip sector will be under a microscope. After this week's roughly $1 trillion wipeout, investors will be watching closely to see whether the selloff was a healthy shakeout of an overheated trade or the start of something deeper. How these stocks trade early in the week will set the tone.
The Iran situation and oil remain critical. The improving energy picture is the most underappreciated positive in the market right now. Any concrete, durable progress on reopening the Strait of Hormuz would push oil lower and feed directly into easing inflation. Any breakdown would reverse that quickly.
The bottom line heading into next week: volatility is back. The jobs market is solid, oil is falling, but the AI trade just took a serious hit and Wednesday's inflation report will be pivotal. Expect continued choppiness until the market finds its footing.
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SmallCapStocks Team
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