Friday Reminds Us Volatility Still Exists, Nine Week Rally Ends

StoThrough the first four days, it looked like US stocks would continue its remarkable 2026 run last week, however Friday saw the biggest selloff of the year, reminding us that volatility remains alive and well. The S&P 500 and Nasdaq spent much of the week near record highs as investors continued to pile into artificial intelligence-related companies. However, by week's end, a sharp semiconductor/tech selloff erased more than $1 trillion in market value from chip stocks and produced the Nasdaq's largest one-day point decline, falling 4.18% in percentage terms.

The S&P 500 fell 2.59% to end its nine-week winning streak, while the average stock held up better, evident by the equally weighted S&P 500 index down just 0.48%. The selloff in semiconductors and AI related names caused a rotation into defensive and value names, the first outperformance for this group since March.

One of the key catalysts for the dramatic decline in semiconductors was the earnings report from Broadcom, the semiconductor company that provides much of the networking hardware and infrastructure that allows AI data centers and cloud computing to run. Its financial results were not bad, it was just some of these stocks are priced to continue seeing blowout numbers.

Broadcom reiterated its 2027 AI guidance, whereas the market was likely expecting an increase in its guidance. There were also some worries about competition along with an Anthropic blog post that discussed the potential slowing of AI development.

Despite the turbulence, the broader story remains unchanged: AI spending continues to reshape markets, corporate investment plans, and the competitive landscape. Because of the large run up in this group of stocks since March, a day like that was overdue, with some now questioning whether these stocks have moved too far, too fast.

The AI race escalated further when Google parent Alphabet announced plans to raise $80 billion to fund additional AI infrastructure investments. The move underscores a major shift occurring across the technology sector – companies have increasingly prioritizing massive capital expenditures to secure computing power, data center capacity, and AI leadership. Investors initially reacted negatively to concerns about diluting existing shareholders, but the announcement reinforced just how large the AI opportunity is perceived to be.

Markets also remained focused on geopolitical worries in the Middle East. Hopes for a lasting ceasefire and de-escalation helped ease some concerns the first half of the week, helping push oil and Treasury yields lower, after reports speculated both sides being close on a 60-day ceasefire extension. However, there were additional strikes back and forth between Iran and Gulf nations, and most recently over the weekend an escalation in strikes involving Israel, further complicating the situation.

Stocks may have also seen pressure on Friday from re-pricing of interest rate expectations. The reason was another strong labor market report. This has brought back the concern of a strong labor market combined with higher, stickier inflation (a weaker labor market like last year gave the Fed more reason for rate cuts).

The DOL said 172,000 new jobs were created in May, over double what was expected. Furthermore, March and April gains were revised higher by a combined 93,000 jobs. The household survey was just as strong with the number of people employed increasing and the number unemployed declining. The unemployment rate remained at just 4.3%.

Markets are now giving it a three-fourths chance the Federal Reserve will raise interest rates by the end of the year, much different than two months ago when markets were pricing in virtually no chance of a rate hike (this based on Fed Funds futures pricing). A year from now, pricing is showing a 50/50 chance we will see two rate hikes, which would push the Fed Funds rate back over 4.0%.



While there is plenty to be optimistic about in the current economic environment, several risks remain beneath the surface. Given these crosscurrents, we expect volatility to remain elevated and would not be surprised to see the market enter a period of consolidation between now and the fall following its strong advance.

Recent Economic Data



• Employment Report: The Department of Labor’s monthly employment report showed 172,000 jobs were added to the economy in May, well above the 85,000 increase that was expected. Moreover, April’s 115,000 increase was revised up to 179,000 while March’s 185,000 increase was revised up to 214,000. Job gains in May were seen the most in leisure and hospitality and health care, while government also saw a large increase after a year of steady declines. One of the bigger disappointments in the labor market has been the participation rate, with only 61.8% of the population employed or looking for a job, the lowest since late 2021. The household data showed 149,000 more people were employed (now at 162.771 million) while the number unemployed declined by 66,000 to 7.307 million. The average wage increased 0.3% in the month and is up 3.4% from a year ago, slowing from the 3.6% annual rate the month prior.

• ADP Payrolls: ADP reported 122,000 new payrolls in May which was right near the expectation and comes after a 105,000 increase in April. The labor market has begun to see some momentum heading into the hiring season after several months of sluggishness this time last year, according to ADP, with hiring much more broad-based in May.

• Job Openings and Labor Turnover Survey: The number of job openings the last day of April was at a seasonally adjusted annual rate of 7.618 million, a big increase from 6.887 million in March and the most job openings since May 2024. Most of the increase came from professional and business services, followed by health care. The number of separations declined by 399,000 to 4.978 million for the lowest number of separations since the pandemic in 2020. Separations were split between quits and layoffs - the number of quits declined 183,000 (to 2.977 million) while layoffs declined 192,000 (to 1.692 million).

• Jobless Claims: The number of state unemployment claims filed the week ended May 30 was 225,000, an increase of 13,000 from the prior week, with the four-week average up 6,500 to 214,750. The number of continuing claims fell slightly to 1.777 million, with the four-week average up slightly to 1.777 million.

• PMI Manufacturing Index: The PMI manufacturing index was 55.1 for May, relatively unchanged from the level in April, suggesting manufacturing activity grew at a moderate pace for the second straight month. The report said there were notable upturns in new orders and production amid stockpiling efforts which it says companies are doing to mitigate price increases and supply delays. Input costs were the highest in over four years while supplier delivery times deteriorated to the greatest extent since 2022.

• ISM Manufacturing Index: The ISM manufacturing index was 54.0 for May, rising from 52.7 in April, also suggesting a growing manufacturing sector in the month. In fact, it was the best reading for the ISM index since May 2022. Most of the components were positive with two of the most important subindexes, new orders and production, rising further into expansion territory. Despite the strength in demand, employment remained in contraction for the 32^nd straight month.

• Factory Orders: New orders for manufactured goods, a report called factory orders, increased a strong 4.8% (or $30.1 billion), now up four of the past five months. The large increase was expected, mostly driven by transportation equipment which increased 21.6%, but more specifically aircraft orders, which increased 166%. Excluding transportation, orders were up 1.3%. Shipments of manufactured goods were strong too, rising 1.0% ($6.3 billion) and up six of the past seven months.

• Construction Spending: Construction spending in April increased 0.4%, slightly more than expected but follows a 0.2% increase in March, which was revised downward from 0.6%. Residential spending drove most of the increase in April, rising 0.8%, while nonresidential spending increased 0.1%. Over the past year construction spending is up 0.9%, with residential up 1.7% and nonresidential up 0.3%.

• ISM Services Index: The services index from ISM (Institute of Supply Management) was 54.5 for May, about one point higher than in April, indicating activity in the services sector increased at a faster pace in the month. The two most important components drove the upside, with an acceleration in new orders and overall business activity. However, inflationary pressures are back on the rise with the prices index at the highest level since 2022. Growth in services was broad with 17 of the 18 service industries experiencing growth in the month. 

Company News



• Nvidia: At the Computex trade show in Taiwan, Nvidia announced new products and partnerships and announced an entrance into the PC market by unveiling a superchip, developed in collaboration with Microsoft and to debut in Windows AI laptops and mini PCs. The processor features significant computational power and includes a new Arm-based CPU, its Blackwell GPU, and 128 GB of memory.

• Intel: The Financial Times reported Intel is planning to launch a new AI focused data center chip, codenamed “Crescent Island,” by the end of the year as part of its efforts to regain relevance, particularly in the fast growing AI market. Unlike Nvidia’s leading chips that are primarily used to train AI models, Intel is targeting the inference market—running AI applications after they are trained—with a lower-cost design that emphasizes affordability and efficiency for enterprise customers.

• Alphabet: Alphabet said it is planning an $80 billion capital raise to accelerate investments in AI data centers, chips, and computing infrastructure, highlighting how quickly AI spending is escalating, but the news also pressured shares over concerns of diluting existing shareholders. Berkshire Hathaway said it will invest $10 billion in the raise. The company expects to spend $180–190 billion on capex this year, adding that demand for AI services reportedly exceeding available computing capacity.

• Apple: A Bloomberg report said Apple is adding a bill-splitting tool to Apple Cash in its iOS 27 update that uses receipt scanning to automatically calculate and request payments from friends and family. The feature would further expand Apple's financial services ecosystem and challenge popular peer-to-peer payment and expense-sharing apps.

• MGM: Shares of MGM were up over 15% after a CNBC report said Barry Diller’s company IAC, who already has a 26% stake in MGM, is preparing to make an $18 billion offer for the company, or $48.30 per share. 

Other News



• Artificial Intelligence Regulation: President Trump signed a new executive order aimed at accelerating US leadership in AI while establishing a framework for monitoring national security and cybersecurity risks. The order establishes a voluntary framework allowing developers of the most powerful AI models to provide the government with early access for security testing before public release, while also creating an AI cybersecurity clearinghouse focused on protecting critical infrastructure from emerging cyber threats.

• New Tariffs: The Trump administration proposed new tariffs of 10% to 12.5% on imports from 60 economies, arguing that many U.S. trading partners have failed to adequately block goods produced with forced labor from entering their markets. The proposal, which targets major economies including the EU, China, India, Japan, Canada, and the U.K., is part of a broader effort to establish a more durable legal framework for tariffs after earlier trade measures faced court challenges.

• Fed Chairman Warsh: The Financial Times reported newly sworn in Federal Reserve Chairman Kevin Warsh may start pulling back the Fed’s “forward guidance” as soon as the next Fed meeting in two weeks. One of the first moves could be withholding his projections on future interest rates in the “dot plot” and other economic projections, with the report citing Fed officials. Warsh has previously said he is not a believer in forward guidance and disagrees with the concept of signaling to the markets and economy what the Fed’s next policy move could be. 

Did You Know...

WFG401k Hardship Withdrawals Reach New Records:

Despite U.S. retirement account balances reaching record levels, a record share of Americans are withdrawing money from their 401(k)s early. Vanguard reported that 6% of participants took hardship withdrawals in 2025, the highest level on record and up from about 2% before the pandemic. The data suggests that while rising markets have boosted wealth for many investors, a growing number of households continue to face financial pressures that require dipping into retirement savings.

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