AI Rally Stumbles
Tech Stocks Dive Globally as Fed Rate Hike Bets Rattle Booming AI Market Rally
Anonymous
A blowout U.S. jobs report has sent shockwaves through global markets, wiping out billions in market value and upending bets that the Federal Reserve would cut interest rates. The Nasdaq fell 4.2% on Friday — its worst day since October — while South Korea's KOSPI dropped as much as 7% on Monday morning, briefly triggering automatic trading halts, according to IG International.
The catalyst: May non-farm payrolls surged by 172,000 — nearly double the expected 90,000 — pushing traders to price in a 70% chance of a rate hike by December 2026, according to Barchart. What had been a roaring AI-driven rally is now facing its sharpest test of the 2025–2026 cycle.
Broadcom's Warning Shot Cracked the AI Armor
The sell-off didn't start with Friday's jobs data. It started Wednesday, June 3, when Broadcom reported earnings that beat expectations but offered a cautious outlook on AI revenue. Its stock dropped 12% intraday. That spooked investors who had piled into semiconductor stocks on the assumption that AI demand was unstoppable, according to Barchart.
By Friday, Broadcom had shed another 7.9%. Nvidia fell 6.2%. Micron lost 13.3%. Meta slid 5.5% after reports surfaced that it may issue new stock to fund its massive AI infrastructure spending — a sign that even the biggest AI winners are struggling to foot the bill in a high-rate world, according to WRAL.
'Too Hot' Jobs Data Flips the Rate-Cut Script
For months, markets had counted on the Fed cutting interest rates in 2026. Friday's jobs report killed that trade. The U.S. economy added 172,000 jobs in May, far above forecasts, while average hourly wages rose 3.4% year-over-year, according to Edward Jones. The 10-year Treasury yield spiked to 4.54%, making stocks — especially high-growth tech — far less attractive.
The Fed's next policy meeting is June 16–17. New Chair Kevin Warsh now faces a dilemma: cut rates as President Trump demands, or hold firm against stubborn inflation running at 3.2%. Trump has also threatened 100% tariffs on Chinese goods — an added inflationary wildcard that ties the Fed's hands further, according to Barchart.
Korea's Market Becomes Ground Zero for the Crash
South Korea's KOSPI has been one of the world's hottest markets. It gained 75% in 2025 and surged another 88% through May 2026. But that spectacular run made it fragile. With 40–50% of the index tied to memory chips, analysts call it a "leveraged semiconductor ETF," according to FX News Group. When chip stocks fall, Korea falls hard.
On Monday, the KOSPI briefly fell 7% before stabilizing at a 4.5% loss. The Korean won sank to 1,529.7 per dollar — a 17-year low. One bright spot: Samsung C&T soared 10.2% as money rotated out of tech into defensive stocks, according to BigGo Finance. The currency slide now risks triggering forced selling by leveraged retail investors.
Bulls Say 'Repricing,' Not Collapse — But Risks Mount
Not everyone is panicking. Amundi, which manages €2.4 trillion in assets, says there is "no AI bubble." Alessia Berardi, the firm's Global Head of Emerging Markets Strategy, argued that AI valuations remain fair relative to earnings, according to The Edge Singapore. Analyst Fabien Yip of IG International called the move a "repricing" of the AI trade rather than a structural breakdown.
But risks are stacking up. Oil is pushing toward $100 per barrel, driven partly by stalled US-Iran peace talks and a breakdown in Middle East ceasefire negotiations — adding more inflation pressure that could keep the Fed hawkish, according to GuruFocus. The June 16 Fed meeting will be the clearest signal yet of where rates — and markets — are headed for the rest of 2026.
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