Markets Snap Winning Streak as AI Momentum Cools and Yields Rise

Market Overview

Stocks started June with a pullback as Wall Street’s nine-week winning streak came to an end. The S&P 500 declined 2.55%, the Nasdaq fell 4.65%, and the Russell 2000 lost 2.91%, while the Dow held up better with a modest 0.21% decline. Growth stocks were hit hardest as the Russell 1000 Growth Index dropped 4.02%, compared with a 0.68% decline for the Russell 1000 Value Index.

The week began with familiar support from technology and artificial intelligence optimism, including enthusiasm around NVIDIA’s move into the PC market. But sentiment faded as oil prices and Treasury yields rose, geopolitical headlines intensified, and corporate AI spending expectations came under closer scrutiny. Alphabet moved lower after announcing an $80 billion equity raise tied to AI investment plans, while Broadcom’s revenue forecast fell slightly short of elevated expectations, pressuring semiconductor shares and raising questions about whether the latest AI rally had moved too far, too fast.

Sector leadership reflected the rotation. Energy gained 2.5% for the week as oil prices rose, followed by healthcare at 2.3% and real estate at 1.4%. Technology fell 5.4%, consumer discretionary dropped 6.1%, and communication services lost 3.9%, highlighting the pressure on growth-oriented areas of the market.

International equities also moved lower. The MSCI EAFE Index declined 1.38%, while emerging markets fell 1.93%. Europe was pressured by rising crude prices, hawkish European Central Bank commentary, and signs of accelerating inflation. Asian markets were mixed to lower, with South Korea leading declines as AI enthusiasm cooled, while Greater China reversed earlier tech-driven gains amid regulatory concerns.

Fixed income markets also struggled as yields moved higher. The 10-year U.S. Treasury yield rose to 4.55% from 4.45% the prior week, while the 2-year Treasury yield climbed to 4.17% from 3.98%. The Bloomberg U.S. Aggregate Bond Index declined 0.54% for the week as stronger economic data and renewed rate hike speculation weighed on bond prices.

Federal Reserve Insights and Economic Roundup

Stronger-than-expected May payrolls data gave markets a fresh reason to reassess the Federal Reserve’s next move. Job demand remained strongest in healthcare and leisure and hospitality, while payrolls contracted in residential construction, financial services, and retail trade. The unemployment rate held steady at 4.3%, remaining within the narrow 4.3% to 4.5% range seen since mid-2025.

Wage growth also remained in focus. Average hourly earnings increased 3.4% year over year, which has not quite kept pace with recent inflation pressures. With oil prices elevated and geopolitical risks still present, investors are watching whether energy market volatility begins to affect hiring, consumer spending, and business activity later this summer.

The latest Beige Book offered a mixed view of the economy. Wage growth appears broadly aligned with inflation, helping consumers keep pace for now. Data center demand continues to support hiring, but outside of that area, the labor market remains in a low-hire, low-fire environment. Businesses are also absorbing higher input costs to protect demand, a sign that companies may see consumers as more fragile.

Credit conditions are becoming a growing concern. While delinquencies remain mostly stable, several contacts reported early signs of deterioration. The economy continues to expand, supported by business investment, but it may have less cushion against additional geopolitical shocks or a slowdown in sales activity. If business conditions soften next quarter, unemployment could begin to move higher.

The Week Ahead

Monday: New York Fed one-year inflation expectations.
Tuesday: NFIB small business optimism, ADP employment, trade balance, existing home sales, wholesale inventories and wholesale trade sales.
Wednesday: MBA mortgage applications, CPI, real average hourly earnings and federal budget balance.
Thursday: Jobless claims, PPI and household net worth.
Friday: University of Michigan consumer sentiment.