Black Friday! The global AI bull market where "everyone makes money" is hit with a rude awakening.

U.S. stocks suffered one of the most brutal single-day sell-offs in recent years on Friday, as the two-month-long AI rally abruptly cooled.

On Friday, the Nasdaq plunged over 1121 points in a single day, marking the largest one-day point drop in history. The market value of S&P 500 components evaporated by $1.8 trillion.

According to Wallstreetcn, May’s non-farm payroll data released Friday came in strong and far exceeded expectations, completely shattering the last hopes for Fed rate cuts and quickly intensifying concerns about a rate hike in 2026.

Interest rate swaps indicate traders expect the Fed will raise the federal funds rate target by 0.25 percentage points at the December policy meeting.

In addition to the much stronger-than-expected non-farm data, multiple catalysts this week jointly triggered Friday’s collective crisis of confidence:

Broadcom's earnings report provided disappointing guidance, first puncturing the belief that "all companies benefiting from AI are invincible."Alphabet's large-scale stock issuance aimed to raise funds for capital expenditures.Meta is also considering a similar financing plan, further intensifying investors' concerns about equity dilution among tech giants.Additionally, expectations of a SpaceX IPO are siphoning off market funds.

Non-farm payrolls exceed expectations, rate hike expectations return

Friday’s May non-farm payroll report showed the labor market was strongly rebounding, directly sparking the current sell-off.

Following the release of the report, the interest rate swap market quickly fully priced in a 25 basis point Fed rate hike this year, with the probability of an October hike rising to about 60%.

The yield on the 10-year U.S. treasury rose by 7 basis points to 4.54%, the 30-year yield returned above 5%; short-term yields saw the most pressure, with the 2-year yield rising by about 10 basis points.

Tracy Chen, portfolio manager at Brandywine Global Asset Management, said:

The employment data shows the labor market is recovering, and inflation should be the Fed’s main focus. With inflation approaching unemployment levels, the Fed may already be behind the curve.

Since the outbreak of the conflict in Iran, the market has been gradually pricing in the possibility of rate hikes in 2026. The release of this strong jobs data further squeezed the Fed’s room to keep rates unchanged.

Jose Torres of Interactive Brokers said:

Yields rising, oil prices falling—that means investors are worried about upcoming Fed rate hikes.

The sudden shift in anticipated Fed policy strengthened the dollar, with the dollar index recording its best single-day performance in two months, up over 1% for the week and breaking through several key technical resistance levels.

Broadcom Earnings Break the AI "Moat" Myth

The seeds of this sell-off were sown earlier this week with Broadcom's earnings report.

Broadcom’s latest quarterly results failed to meet market expectations, causing the previously surging semiconductor rally to falter.

(Broadcom post-earnings, stock plunged June 4)

Steve Sosnick, Chief Market Strategist at Interactive Brokers, commented:

The trigger was never so obvious, but I think Broadcom represents a shift in mindset. The guidance was disappointing... I think it shattered many people's belief—that any company that might benefit from AI spending is invincible.

Previously, market sentiment was extremely optimistic. Starting in the second quarter, memory and optical chip stocks led a powerful, but highly concentrated, rally.

Continued breakthroughs in AI model capabilities renewed investor confidence in the prospects for artificial intelligence, while sustained commitments from hyperscale cloud operators to build data centers created huge supply bottlenecks for key components such as high-bandwidth memory chips.

Take Micron Technology for example: its stock price jumped more than 200% from the end of March through Thursday, with its market cap briefly passing $1 trillion, making it the world’s 12th trillion-dollar company.

However, this parabolic surge ground to a halt after Broadcom’s results came out. On Friday, the Philadelphia Semiconductor Index plunged over 10%, with more than $1 trillion in market value evaporating in a single day—the worst drop since March 2020.

Google, Meta Share Issuance and SpaceX IPO: "Siphon Effect" Hits Funds

During late-Friday trading, another news item accelerated the decline further.

According to the UK's Financial Times, Meta is considering following Alphabet and carrying out large-scale equity financing to meet its massive capital expenditure needs.

Michael Kramer, founder of Mott Capital Management, said:

Alphabet's recent stock issuance, combined with rumors of Meta following suit, if these companies begin large-scale share issuance for capital expenditure financing, it could fundamentally change how the market views investments in these companies.

Kramer further pointed out:

In the coming quarters, these companies may face a dilemma: to meet spending needs by taking on debt and issuing more shares, or to cut capital expenditures. Either outcome is unlikely to be optimistic for stock prices.

According to Bloomberg, tech giants' combined capital expenditure for data center construction totals as much as $820 billion. Previously the market viewed this figure as evidence of a boom in AI infrastructure investment.

Now, as financing shifts from internal cash flow to external share issuance, this narrative is quietly losing its appeal.

Meanwhile, rising anticipation for the SpaceX IPO is also sparking discussion about fund diversion in the market, heightening doubts among investors about valuations being overstretched under the AI capital spending narrative.

Two Months Of Strong Gains Come To An Abrupt End, Funds Shift To Defensive Sectors

Bloomberg macro strategist Michael Ball noted that Friday’s decline was mainly a repricing of the crowded leading AI capital spending stocks. The Dow only edged lower for the week, indicating the sell-off was concentrated among high-beta momentum stocks.

Ball analyzed that the highly crowded positions in the tech sector make any fluctuation easily turn into a self-reinforcing sell-off. He said:

As economic growth displays greater resilience, the valuation premium enjoyed by long-term winners of AI capital spending should be subject to lower multiples.

Moreover, Friday saw a clear shift towards defensive assets. The consumer staples sector bucked the trend and rose 1.6%, with Coca-Cola stock jumping 3.5% in a single day, becoming one of the few bright spots in US stocks on Friday.

This divergence shows that some investors have actively reduced risk exposure and moved to defensive assets for shelter.

SpotGamma marks the 7500 zone as the current most critical risk threshold for the S&P 500: holding above this level, market maker hedging flows help to slow declines and foster mean reversion.

Once breached, forced stock sales and option skew collapse at the individual stock level may remove support for the index.

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

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