The main stock indices fell sharply on Friday after a strong jobs report set the stage for the Federal Reserve to raise rates, denting the stocks of companies involved in dizzying hikes investments in artificial intelligence.
The threat of higher interest rates often sends stocks lower because borrowing money, especially from big sums from which AI companies borrow becomes more expensive.
The Nasdaq 100 Index, which tracks the largest non-financial technology stocks traded on the Nasdaq exchange, fell more than 3%. Leading the index 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. Yields on U.S. government bonds, which influence the interest rates consumers pay, rose to their highest level in about a week.
Still, major indexes remain near record highs. The S&P 500 and Nasdaq both still hold gains of around 10% for the year.
Friday’s difficulties affected several large technology companies. Broadcom, which sparked sales 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 world’s largest publicly traded company, fell about 5%. Oracle shares lost 9% of their value and IBM lost 7% at midday.
Shares of construction equipment companies that help build AI data centers also fell. Caterpillar shares fell nearly 3%.
Investors are rattled by the likelihood that the Federal Reserve could raise rates before the end of the year. Currently, the futures market is pricing in a rate hike by December with a 60% chance that rates will rise by the October Fed meeting.
Kevin Hassett, director of the National Economic Council at the White House, said earlier Friday that markets were “horribly wrong” in judging that the good jobs report meant higher interest rates.
Hassett added, in an interview with Bloomberg Television, that the ongoing energy shock resulting from the war with Iran is not likely to cause widespread inflation.
He said his advice to the Federal Reserve and its new chairman, Kevin Warsh, would be to “watch the numbers, because what you’re going to see is that with a strong supply-side boom, you could have high growth without having to scare away inflation.”