Major stock indexes fell sharply Friday after a strong jobs report set the stage for the Federal Reserve to hike rates, rattling shares of companies that are involved in sky-high artificial intelligence investments.
The threat of higher interest rates often sends stocks lower because borrowing money, especially at the large sums that AI firms are borrowing at, becomes more expensive.
The Nasdaq 100, which tracks the largest non-financial tech stocks traded on the Nasdaq stock exchange, tumbled more than 3%. Leading that index lower were shares of chipmakers Arm, Marvell, Qualcomm, AMD and Intel. Companies involved in the AI data center space, such as Micron Technologies and Western Digital also plunged more than 7%.
The S&P 500 fell 1.8% and the Dow Jones Industrial Average fell 450 points. U.S. government bond yields, which influence interest rates paid by consumers, rose to about their highest level in about a week.
Still, major indexes remain near record highs. The S&P 500 and Nasdaq are still both holding on to gains of around 10% for the year.
Friday’s pain hit several major tech firms. Broadcom, which triggered selling in tech stocks earlier in the week after a lackluster earnings report, fell 6%, bringing its total loss this week to more than 13%.
Nvidia, the largest publicly traded company in the world, slid about 5%. Oracle shares lost 9% of their value and IBM dropped 7%, as of mid-day trading.
Shares of construction equipment companies that help build AI data centers fell, too. Shares of Caterpillar dropped almost 3%.
Investors are rattled at the likelihood that the Federal Reserve could hike rates before the end of the year. Currently, the futures market is projecting a rate hike by December with a 60% chance that rates rise by October’s Fed meeting.
Kevin Hassett, the director of the National Economic Council at the White House, said earlier Friday that markets are “terribly wrong” to judge that the strong jobs report means higher interest rates.
Hassett added, in an interview on Bloomberg Television, that the ongoing energy shock from the war with Iran is not likely to cause widespread inflation.
He said that his advice to the Federal Reserve and newly installed Chairman Kevin Warsh would be to “watch the numbers, because what you’re going to see is that with a big supply side boom, you could have high growth without having run away inflation.”