Nasdaq drops 3.5% as rate-hike fears deepen tech rout

The selloff in US technology stocks deepened Wednesday, with the Nasdaq Composite sliding 3.5% as traders priced in a growing likelihood of Federal Reserve rate hikes.

The Nasdaq Composite fell 3.5% on Wednesday, extending a selloff triggered by a May jobs report that showed hiring more than double expectations.

"Any hopes of a Fed rate cut have effectively been eliminated," Ronald Temple, chief market strategist at Lazard, said after the June 5 data release.

The decline added to a 4.2% drop on June 5 — the Nasdaq's worst session since April 2025 — after the Labor Department reported 172,000 jobs were added in May, more than double the 80,000 consensus estimate. The 10-year Treasury yield surged to 4.55%, while the CME FedWatch tool showed the probability of a rate hike at the Fed's October meeting rising to about 50% from 34% a day earlier.

The selloff marks a sharp reversal for technology stocks that had powered the Nasdaq to an 11% year-to-date gain through May. With the Fed now seen as more likely to raise rates, the rotation out of high-multiple tech names could accelerate as investors reassess the cost of capital for the sector that led the bull market.

Tech Leads Decline as Yields Break Higher

The selloff was broad-based, with all of the Magnificent Seven tech giants lower in recent sessions. Nvidia and Tesla each sank more than 6% on June 5, while chip stocks including Broadcom, Arm Holdings, and Advanced Micro Devices fell between 8% and 17%. Broadcom extended its losses on Thursday, falling 12.6% after a disappointing forecast revived doubts about AI stock valuations, according to Angelo Kourkafas, senior investment strategist at Edward Jones.

The 10-year Treasury yield held near 4.55%, its highest level in months, as traders repriced rate expectations. The US dollar index rose 0.6% to 100.04, while gold futures fell 3.6% to $4,345 an ounce. Bitcoin briefly dropped below $60,000 for the first time since October 2024, and cryptocurrency-tied stocks including Coinbase and Strategy declined between 7% and 12%.

Oil prices added another layer of uncertainty. West Texas Intermediate crude fell 2.9% to $90.35 a barrel, while Brent crude settled at $93.09, as the Iran conflict and blockade of the Strait of Hormuz continued to rattle energy markets. The OECD this week cut its global growth forecast for 2026 to 2.8% from 3.4%, warning that a prolonged closure of the strait could slow global growth to 2.1%.

Rate Path in Focus

The S&P 500 snapped a nine-week winning streak with a 2.6% decline over the week ended June 5, its biggest weekly drop since May 2025. The Dow Jones Industrial Average fell 1.4% for the week, while the Nasdaq posted its largest weekly decline since April 2025.

"The hot jobs number takes rate cuts off the table," Bill Adams, chief US economist at Fifth Third Commercial Bank, said. He warned that the Iran conflict and potential closure of the Strait of Hormuz could further complicate the inflation outlook, noting that real average hourly earnings had already declined in the prior two months.

Traders will now focus on upcoming economic data and Fed commentary for signals on the rate path. The next Federal Reserve meeting is scheduled for late July, with the CME FedWatch tool indicating growing odds of a rate hike by October.

This article is for informational purposes only and does not constitute investment advice.