Wall Street extended its recent decline on Friday despite a surprisingly strong US jobs report, as investors focused on the growing likelihood that the Federal Reserve may need to keep interest rates higher for longer.
The sell-off prompted an unusual intervention from US President Donald Trump, who argued that strong economic growth should be positive for equities.
“With a great Jobs report, like just announced, stocks should go up, not down,” Trump wrote on social media. “That’s the way it was for 200 years. Growth does not mean inflation!”
The comments followed the release of employment data showing the US economy added 172,000 jobs in May, almost double economists’ forecasts of 88,000. The stronger-than-expected figures reinforced the view that the labour market remains resilient despite elevated borrowing costs.
However, investors interpreted the data differently. Stronger economic activity increases the risk that inflationary pressures could persist, potentially forcing the Federal Reserve to maintain a restrictive monetary policy stance or even raise rates further.
As a result, traders increased bets that the Fed could lift rates from the current 3.50%-3.75% range to between 3.75% and 4.00% before the end of the year.
The prospect of higher rates weighed heavily on equities, particularly technology stocks. The Dow Jones Industrial Average fell 0.55%, while the S&P 500 dropped 1.4% as investors reassessed valuations across growth sectors.
Technology companies have become especially sensitive to interest rate expectations because many are investing vast sums into artificial intelligence infrastructure, data centres and computing capacity. Higher borrowing costs can increase financing expenses and reduce the attractiveness of future earnings growth.
The latest decline adds to a difficult week for US markets, with concerns growing that parts of the technology sector may have become overheated following the AI-driven rally of the past two years.
Investor nerves were further rattled by Broadcom’s recent results, which included guidance that failed to meet the market’s elevated expectations. The announcement triggered a sharp sell-off across semiconductor stocks and contributed to more than US$650 billion being wiped from the value of major US chipmakers in a single trading session.
While the stronger jobs report underlines the resilience of the US economy, investors are increasingly concerned that economic strength may delay any move towards lower interest rates, creating a more challenging backdrop for richly valued technology and AI-related stocks.
