Nonfarm payrolls cooling shatters hawkish narrative, Dow hits new highs, chip stocks plunge again, Nasdaq 100 falls 2% intraday, gold surges.

The US June non-farm payroll data came in significantly below expectations, abruptly cooling market concerns about the Fed raising interest rates, driving the dollar lower, short-end US Treasury yields down, and gold higher.

However, the macro "good news" failed to cover the deep adjustment in the tech sector. Chip stocks fell for two consecutive days, putting pressure on the Nasdaq alone, dragging the S&P 500 to close nearly flat, while the Dow hit a record high due to capital rotation into traditional sectors.

Wall Street Journal noted that June non-farm payrolls added only 57k jobs, combined with downward revisions for the previous two months, well below market expectations.

Swap market traders immediately reduced their bets on a Fed rate hike in the coming months, with the 2-year US Treasury yield falling 4 basis points to 4.14%, and the dollar index posting its largest single-day decline in two months, with USD/JPY dropping to 161.10. This combination of signals clearly conveys the market's repricing of the monetary policy path.

The combination of slowing employment growth and doubts about the sustainability of AI infrastructure spending has crushed momentum-driven capital from both sides — AI chip stocks and memory stocks both fell over 18% within two days, the momentum factor posting its worst two-day performance since November 2020, and hedge fund year-to-date gains have significantly shrunk.

Rate hike expectations cool, macro breather provides some respite

June non-farm payrolls added 57k jobs, far below market expectations, with the previous two months' data revised down combined. Although the unemployment rate fell to 4.2%, the main reason was a decline in the labor force, with the number of employed people aged 25-34 dropping by 700k in a single month.

After the data release, market expectations for the Fed's next move clearly shifted to "wait and see."

Bret Kenwell of eToro stated that this report is not a clear signal of an economic recession, but it is sufficient to bring the Fed's policy discussion back to the "dual mandate" framework, rather than solely focusing on inflation pressure. Andrew Dubinsky of UBS Chief Investment Office pointed out:

A labor market that is still expanding but no longer overheating allows the Fed to be patient while assessing price pressures.

Fed Chair Walsh said earlier this week that inflation risks have declined but reiterated the determination to push inflation back to the 2% target.

Brian Jacobsen of Annex Wealth Management commented that with employment not overheating and inflation expectations trending mild, the Fed does not need to act all summer.

Bloomberg macro strategist Edward Harrison added that the market is gradually forming a judgment: There is no fundamental difference between Walsh's Fed and the Powell era. If core inflation remains above 3%, the result could be a prolonged pause rather than a rate hike.

Chip stocks suffer consecutive heavy losses, momentum trading faces historic liquidation

The macro breather did not benefit the tech sector.

On Thursday, the US S&P 500 closed nearly flat, the Dow rose 1.1% to a record high, and the Nasdaq fell 0.8%. The Philadelphia Semiconductor Index fell 11% cumulatively over two days, with both AI chip stocks and memory stocks experiencing massive sell-offs.

Goldman Sachs data shows memory stocks fell over 18% in two days, the largest drop in at least 12 years.

The two-day decline in AI chip stocks is comparable to the violent fluctuations around the so-called "reciprocal tariffs" last year.

Goldman Sachs' "AI beneficiary stocks vs. impacted stocks" pairing fell 16% in two days, the worst performance on record.

The direct trigger for this sell-off is the ongoing questioning of the rationality of AI infrastructure spending. Meta's earlier remarks about "excess computing power" further exacerbated investor disagreements, putting pressure on already crowded momentum trading positions.

The momentum factor overall fell over 18% in two days, significantly eroding hedge fund year-to-date gains, with their VIP long-short hedge portfolio returning to -21% year-to-date, while the S&P 500 remains up about 9% year-to-date.

Notably, the South Korean stock market plunged along with memory chip stocks, becoming one of the overseas markets most affected by this global momentum liquidation.

Capital rotation: Dow hits record high, gold and bitcoin strengthen simultaneously

The outflow of capital from high-valuation growth stocks did not cause a market-wide collapse but instead drove a clear sector rotation.

The Dow rose 1.1% driven by financial and consumer stocks, hitting a record high; the healthcare sector led all S&P 500 sectors, while technology and energy both closed below the flatline.

On a weekly basis, both the S&P 500 and the Dow posted positive weekly returns, masking the sharp divergence at the sector level. The Nasdaq, after significant intraweek volatility, closed slightly higher.

More notable is the magnitude of this momentum trading liquidation. Goldman Sachs data shows this is the worst two-day performance for the momentum factor since the Pfizer vaccine news in November 2020, when the market backdrop was a crash in high-growth tech stocks and a sharp rebound in financial and energy stocks.

The historical similarity raises the question of whether this rotation signals a deeper structural shift, a core issue investors need to track continuously.

The next key time window will be next week's US inflation data release. If CPI continues to cool, it will further solidify market expectations of the Fed "staying put all summer."

Conversely, if inflation surprises to the upside, the current logic of cooling rate hike expectations built on weak employment data will face a test. US markets will be closed on Friday for Independence Day, giving investors an additional cooling-off period to digest this week's signals.

The weakening dollar provided support for non-US assets.

Spot gold rose 2.2% to $4,120.36 per ounce, returning above $4,100.

Bitcoin rose 2.2% to $61,392, with cumulative gains of over 5% over the past two days, the best two-day performance since February this year — partly related to capital inflows and the risk-off rotation following the sharp volatility in South Korean stocks.

Crude oil moved independently of risk assets. WTI crude edged down 0.1% to $68.48 per barrel, remaining under pressure for the week.

After the reopening of the Strait of Hormuz, Persian Gulf crude oil exports rebounded quickly. According to Bloomberg data, daily flow on July 1 reached 14 million barrels — combined with Saudi Arabia's diverted exports via Yanbu port and the UAE's via Fujairah port, supply-side pressure continues to accumulate.

Natasha Kaneva, head of commodities research at JPMorgan, said:

A wave of crude oil is about to hit the market, and the market currently does not need it.

The contango structure in crude futures has widened to its largest since December 2022, indicating the market's clearer pricing of near-term oversupply.

**On the day of the US non-farm payrolls report, the S&P 500 closed up 0.01 points, accumulating a 1.76% gain this week. The semiconductor index was sold off again, with chip stocks falling 11% over two days, causing the Nasdaq to drop 0.8% on the day.

US benchmark indices:

• S&P 500 closed up 0.01 points, +0.00%, at 7,483.24, up 1.76% this week.

• Dow Jones Industrial Average closed up 594.83 points, +1.14%, at 52,900.07, breaking the previous record closing high of 52,319.20 set on June 30, up 1.76% this week, with markets closed on Friday.

• Nasdaq closed down 207.36 points, -0.80%, at 25,832.672, up 1.97% this week.

• Nasdaq 100 closed down 479.92 points, -1.61%, falling for the second consecutive day, at 29,329.213, up 0.72% this week, overall hitting highs and then retreating.

• Russell 2000 closed down 0.55%, at 2,996.11, down 0.46% this week.

• VIX fear index closed down 2.71%, at 16.14, down 12.33% this week, continuing its overall decline.

US industry ETFs:

• US industry ETFs were mixed, with biotech ETFs closing up over 2.9%, and semiconductor ETFs falling over 4.5%.

(July 2 US industry sector ETFs)

Chip stocks:

• Philadelphia Semiconductor Index closed down 727.058 points, -5.45%, falling for the second consecutive day (cumulative -11.38% over two days), at 12,626.221, down 4.37% this week.

• Chip design and computing chain stocks collectively plunged: Marvell closed down 9.84%, Arm fell 6.58%, Micron fell 5.49%, AMD fell 4.26%, Broadcom fell 2.41%, Nvidia relatively resilient but still down 1.39%, TSMC ADR fell 2.27%.

• Semiconductor equipment stocks fell deeper: Teradyne slumped about 13.6%, KLA fell about 11.5%.

• Memory manufacturer SanDisk plunged over 14%, down about 27% from its stage high.

Chinese concept stocks:

• Nasdaq Golden Dragon China Index closed down 1.77%, ending a streak of four consecutive days of rebound, at 5,912.23, up 3.18% this week.

• Among popular Chinese concept stocks: Baidu closed down about 4%, NIO and XPeng fell over 3%, ASE Semiconductor fell 2.7%, NetEase fell 1.9%, Tencent fell 1.8%, Alibaba fell 1.5%, Meituan rose 1.6%, Xiaomi rose 2.7%, BYD rose 3.1%.

Other individual stocks:

• Circle rose 4.35%.

European stocks hit record closing highs, with Bayer up 8.9% leading the way. German stocks rose over 2.1%, hitting a record closing high again since mid-January, while the Italian banking sector and Spanish indices also hit record highs.

Pan-European indices:

• European STOXX 600 closed up 1.41%, at 648.35, breaking the previous record closing high of 641.73 set on June 30.

• Eurozone STOXX 50 closed up 1.24%, at 6,360.47, hitting another record closing high after one day.

Country indices:

• German DAX 30 closed up 2.16%, at 25,580.88.

• French CAC 40 closed up 1.65%, at 8,474.86.

• UK FTSE 100 closed up 1.67%, at 10,652.87.

  (July 2 Major European and US index performances)

Sectors and stocks:

• Among Eurozone blue chips: German Bayer closed up 8.90%, German Rheinmetall RHM up 6.13%, Deutsche Bank up 5.31%, German Volkswagen up 4.80%, UniCredit up 4.07% ranking fifth.

• Among all components of the European STOXX 600: ThyssenKrupp closed up 8.86%, Abivax up 8.77%, Saab up 8.60%, leading alongside Bayer, Prosus ranked 14th worst, ASML ranked 9th worst.

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