By Asa Fitch
Friday's carnage in tech stocks shows just how fragile this year's rally has become.
Investors are so antsy about the bubbliness of the AI trade these days that any sign of weakness can prompt a selloff. And markets were wrestling Friday with three potentially worrying signs.
-- AI chip player Broadcom gave a forecast late Wednesday for current-quarter AI revenue that fell below analysts' forecasts. That spooked investors even though there wasn't a particularly worrying explanation for it.
-- Then came an unexpectedly good jobs report for May. A healthier labor market could lead the Federal Reserve to keep interest rates elevated to combat inflation. Indeed, investors on Friday were pricing in an around 50% chance that the Fed could hike in October, up from a less than 20% chance a month ago. Higher rates wouldn't be good for tech stocks that thrive when money flows freely through the economy.
-- Investors are also getting ready to put money into SpaceX ahead of its expected IPO next week. They are most likely to sell the so-called Magnificent Seven stocks, a group of big tech names, to rotate into SpaceX, Jefferies analysts said in a note.
All this is happening against a backdrop of worry prompted by the market's reliance on big tech stocks, stretched valuations and a notable level of market concentration.
As Jeff Weniger, head of equity strategy at WisdomTree, noted in a post on X Friday afternoon, more than half of the S&P 500's total value is in stocks priced at a multiple of more than 10 times sales. "This was once considered an outlandish valuation, as it leaves little room for error," he wrote.
Of course, factors like those can leave as quickly as they come. Despite its end-of-week swoon, the Nasdaq is still up around 10% this year.
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(END) Dow Jones Newswires
June 05, 2026 15:36 ET (19:36 GMT)
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