Black Friday: The "Everyone Makes Money" AI Bull Market Gets a Wake-Up Call

U.S. stocks experienced one of the worst single-day sell-offs in recent years on Friday, as the two-month-long AI rally suddenly cooled down.

On Friday, the Nasdaq plunged more than 1,121 points in a single day, marking the largest single-day point decline in history. The market value of the S&P 500 components evaporated by $1.8 trillion.

The strong May non-farm employment data released on Friday exceeded expectations, completely shattering the market’s last hope for a Federal Reserve rate cut and quickly intensifying concerns about rate hikes in 2026.

Interest rate swaps show that traders expect the Federal Reserve to raise the federal funds rate target by 0.25 percentage points at the December policy meeting.

In addition to the unexpectedly strong non-farm data, multiple catalysts this week jointly triggered a collective confidence crisis on Friday:

• Broadcom’s disappointing earnings guidance first shattered the market belief that "all AI-benefiting companies are invincible."

• Alphabet issued a large number of new shares to raise capital expenditure funds.

• Meta is also considering following suit with similar financing plans, further fueling investor concerns about equity dilution among tech giants.

• Additionally, the anticipated IPO of SpaceX further diverted market funds.

Non-farm data beats expectations, rate hike expectations surge again

The May non-farm employment report released on Friday showed a strong rebound in the labor market, serving as the direct trigger for this round of sell-off.

After the report was published, the interest rate swap market quickly priced in a full 25 basis point rate hike by the Fed this year, with the probability of a rate increase at the October meeting rising to about 60%.

The 10-year U.S. Treasury yield rose 7 basis points to 4.54%, and the 30-year yield returned above 5%; the short-term yields were under the most pressure, with the 2-year yield rising about 10 basis points.

Brandywine Global Asset Management portfolio manager Tracy Chen said:

The employment data indicates that the labor market is recovering, and inflation should be the Fed’s focus. As inflation approaches the unemployment rate level, the Fed may already be behind the curve.

Since the outbreak of the Iran conflict, the market has been gradually digesting the possibility of rate hikes in 2026. The strong employment data further compressed the Fed’s room to keep rates unchanged.

Interactive Brokers’ Jose Torres said:

Rising yields and falling oil prices—this means investors are worried that the Fed will raise interest rates.

The sudden shift in expectations for Fed policy path strengthened the dollar, with the dollar index posting its best single-day performance in two months, rising over 1% during the week, and breaking through multiple key technical resistance levels again.

Broadcom’s earnings shatter the "AI moat" myth

The prelude to this plunge was already laid earlier this week by Broadcom’s earnings report.

After releasing its latest quarterly results, guidance fell short of market expectations, causing the previously soaring semiconductor sector to start losing momentum.

(Broadcom’s stock price plummeted after earnings on June 4)

Interactive Brokers’ chief market strategist Steve Sosnick said:

The trigger factors are never so obvious, but I think Broadcom represents a shift in mindset. The guidance was disappointing… I believe it has shattered many people’s beliefs—that any company benefiting from AI spending is invincible.

Previously, market sentiment was astonishingly optimistic. Since the second quarter, memory and optical chip stocks led a strong but highly concentrated rally.

The continuous breakthroughs in AI model capabilities revived investor confidence in AI prospects, while the ongoing commitment of large cloud computing companies to data center construction created significant supply bottlenecks for high-bandwidth memory chips and other key components.

Take Micron Technology as an example: its stock price has risen over 200% from the end of March to this Thursday, with a market value that once surpassed $1 trillion, making it the 12th company worldwide to reach a trillion-dollar valuation.

However, this parabolic rally came to an abrupt halt after Broadcom’s earnings. On Friday, the Philadelphia Semiconductor Index plunged over 10%, with market value evaporating by more than $1 trillion in a single day—the worst single-day decline since March 2020.

Google, Meta issuance of new shares, and SpaceX IPO: the "siphoning" of funds begins

During the late trading decline on Friday, another piece of news further accelerated the downward trend.

According to the Financial Times, Meta is considering following Alphabet’s example by implementing large-scale equity financing to meet its massive capital expenditure needs.

Michael Kramer, founder of Mott Capital Management, said:

Recent equity issuance by Alphabet, along with rumors that Meta might follow suit, could fundamentally change the investment logic for these companies if they start issuing large amounts of stock to finance capital expenditures.

Kramer further pointed out:

In the coming quarters, these companies are likely to face a dilemma: raise funds through debt and equity issuance to meet spending needs, or cut back on capital expenditures. Both outcomes are unlikely to be optimistic for stock prices.

According to Bloomberg, the total capital expenditure by tech giants for data center construction has reached $820 billion. The market previously viewed this figure as evidence of a booming AI infrastructure investment.

Now, as financing shifts from internal cash flow to external equity issuance, the narrative’s attractiveness is quietly diminishing.

Meanwhile, the rising anticipation of SpaceX IPO has also sparked discussions about fund flows, further fueling investor doubts about valuation overreach under the AI capital expenditure narrative.

Two months of strong rally abruptly ends, funds flow into defensive sectors

Bloomberg macro strategist Michael Ball pointed out that Friday’s decline was more about repricing crowded AI capital expenditure stocks, with the Dow Jones Industrial Average only slightly down for the week, indicating that the sell-off was concentrated in high-beta momentum stocks.

Michael Ball analyzed that the highly crowded positions in the tech sector make any volatility prone to self-reinforcing sell-offs. He said:

As economic growth shows more resilience, the valuation premium enjoyed by long-term winners of AI capital expenditure should be valued at a lower multiple.

Additionally, there was a clear defensive shift in fund flows on Friday. The consumer staples sector rose 1.6% against the trend, with Coca-Cola’s stock price rising 3.5% in a single day, becoming one of the few bright spots in the U.S. stock market on Friday.

This divergence indicates that some investors have proactively reduced risk exposure and turned to defensive assets for shelter.

SpotGamma identified the 7,500 level as the most critical risk threshold for the S&P 500: holding above this level helps market makers hedge flows, easing declines and promoting mean reversion.

Once broken, forced selling at the stock level and a collapse in options skewness could cause the index to lose support.

Analysts believe that Friday may just be the first chapter of this story.