For nine weeks the S&P 500 climbed through a war, sticky inflation, and a Fed on hold. This week it could not manage the tenth. A jobs report too strong to ignore killed the rate-cut hope, swaps moved to pricing a hike, and the artificial intelligence trade that had led the entire rally fell apart. The Nasdaq 100 had its worst day since April 2025. The question now is whether this was profit-taking or the start of something larger.
The proximate cause was the May jobs report. US employers added jobs well above every forecast, and the unemployment rate held steady at 4.3%. On its own, that is good news. It is the clearest sign in months that the labour market is escaping the sluggish hiring of the past year. But in the current environment, strong employment data does not reassure markets. It frightens them, because it removes the Federal Reserve's reason to cut rates and raises the prospect that the next move is a hike.
The bond market repriced immediately. Two-year Treasury yields jumped 12 basis points to 4.16%. The 10-year rose to 4.54%. Interest rate swaps moved to fully pricing a rate increase by the end of 2026. That repricing landed directly on the most expensive part of the equity market: the AI and semiconductor names that had driven the rally from the March lows and were trading at valuations that only make sense in a falling-rate world.
The result was a rout. The S&P 500 fell 2.6%, failing to complete a tenth straight weekly gain. The Nasdaq 100 fell 4.8%, its worst single session since April 2025. A gauge of chipmakers tumbled 10% in a week. Bitcoin slumped below $61,000. The selloff was concerted across stocks, bonds, and crypto, which tells you it was a macro repricing rather than a story about any single company.
The dollar strengthened 0.6% on the Bloomberg Dollar Spot Index as the rate repricing pulled capital toward US yields. The euro fell to $1.1518, sterling to $1.3331, and the yen weakened to 160.23 per dollar. The MSCI World Index fell 2.3%. European bond markets were comparatively calm, with German 10-year yields up only two basis points to 3.04% and UK gilts steady at 4.90%, which suggests the shock was primarily a US rate story rather than a global growth scare.
The one bright spot in the data was oil. WTI crude fell 2.9% to $90.38, and gold dropped 3.6% to $4,313 as rising real yields reduced the appeal of holding a non-yielding asset. The fall in crude is the single most important number in this entire recap for Indian investors, and I will return to why.
The question every investor is now asking is whether this is the beginning of the end for the AI trade or simply a healthy correction after an extraordinary run. The honest answer is that nobody knows yet, but the structure of the selloff tells us something useful.
This was a valuation event, not an earnings event. The AI companies that led the decline did so after an impressive earnings season, not a disappointing one. The concern, as Mark Hackett at Nationwide framed it, is whether growth rates have peaked, not whether growth has reversed. When a sector sells off 10% in a week despite good earnings, the market is repricing how much it is willing to pay for those earnings, not rejecting the earnings themselves.
That distinction matters. A bubble bursts when the underlying story is revealed to be false. A correction happens when a true story gets too expensive. The semiconductor index was heading toward its best quarter ever before this week. Some unwinding of that was inevitable the moment the rate environment shifted. Whether it stops at a correction or becomes something worse depends almost entirely on what inflation does over the next two months and whether the Fed actually moves to hike.
There is a constructive reading worth stating. Neil Dutta at Renaissance Macro made the point that if the Fed ends up hiking because employment is expanding, that is not necessarily bad for equities. An inflationary boom, where the economy is genuinely growing, is a different and far less dangerous environment for stocks than stagflation, where prices rise without growth. The jobs data this week pointed to the former. The market's knee-jerk reaction treated it as the latter. Which interpretation proves correct will be the central question of the coming weeks.
Kevin Warsh chairs his first FOMC meeting on 16 and 17 June. He inherits a labour market that just surprised strongly to the upside, an inflation picture complicated by the energy shock of recent months, three existing dissenters who have argued the next move could be a hike, and a market that has now moved to pricing exactly that.
Warsh is known as a hawk who prioritises the Fed's inflation-fighting credibility over accommodating growth. Seema Shah at Principal Asset Management captured the stakes well: if Warsh pushes for cuts at his first meeting, he would be pushing against the evidence. The base case remains that the Fed holds through 2026, but if employment continues at May's pace, rate hikes this year move firmly into play. Markets will parse every word of his first statement for the direction he intends to set.
There is a political dimension worth noting. White House National Economic Council Director Kevin Hassett publicly stated that markets are "terribly wrong" to price in a rate hike. When the executive branch is publicly contradicting the market's read on the central bank just before a new Fed Chair's first meeting, the independence of monetary policy becomes part of the story. That is a variable to watch beyond the data itself.
Several significant stories ran underneath the macro turmoil this week.
President Trump expressed interest in the US government taking equity stakes in leading AI developers, saying he planned to discuss the idea of a partnership with AI company executives as soon as next week. Government equity participation in private AI firms would be an extraordinary departure from how the US has historically treated strategic industries, and the market implications, both for the companies involved and for the precedent it sets, are significant.
Meta is considering a large stock offering, following Alphabet's successful $85 billion equity sale. When the largest technology companies move to raise equity rather than debt, it tells you something about how they view the cost of capital and the level of their own share prices. Raising equity near a market peak is rational corporate behaviour. It is also a signal worth noting.
Alphabet's Google agreed to pay SpaceX $920 million a month for computing power through mid-2029, its second such deal with an AI competitor in weeks. The scale of these compute commitments is staggering and underpins the entire AI infrastructure thesis. It also illustrates how much of the AI economy is currently companies paying each other enormous sums for capacity, which is part of what makes investors nervous about circularity in the revenue figures.
On the SpaceX IPO, Morgan Stanley's effort to prevent retail investors from placing multiple orders is facing pushback from large brokerages. The mechanics of who gets access to the most anticipated listing in years is becoming a story in itself. And the top lawyers for several US states are drafting an antitrust challenge to Paramount Skydance's $110 billion acquisition of Warner Bros. Discovery, setting up a major legal battle over media consolidation.
Indian equities were comparatively resilient, which is the headline for domestic investors this week. The Nifty 50 fell only around 0.8% for the week to close near 23,366, a fraction of the damage seen in US technology. The Sensex closed around 74,243. IT and metals took the brunt of the global cues, with TCS, Wipro, Tata Steel, and Hindalco all under pressure, while FMCG and defensive names including Hindustan Unilever held up, alongside Adani Ports and Axis Bank.
The defining domestic event was the RBI policy on 6 June. The Monetary Policy Committee unanimously held the repo rate at 5.25% with a neutral stance, which was expected. The surprise was in the projections. Governor Sanjay Malhotra cut the FY27 GDP growth forecast from 6.9% to 6.6% and raised the inflation forecast by 50 basis points to 5.1%, citing imported energy costs. That combination, lower growth and higher inflation, is the early signature of stagflationary pressure, and it is a direct consequence of the oil shock of the past two months.
The more consequential part of the RBI announcement was structural. The central bank aggressively liberalised foreign capital access to Indian government bonds, expanding the Fully Accessible Route to 15, 30, and 40-year tenors and setting up concessional foreign exchange swap facilities for public sector undertakings. The intent is to attract long-term foreign capital into Indian fixed income.
This worked immediately on the currency. Despite the oil pressure, the rupee strengthened roughly 50 paise to close around 95.24 against the dollar, helped by the prospect of foreign debt inflows and the fall in crude. The India 10-year G-Sec yield eased to around 6.95 to 7.13%, depending on the source. For Indian investors, the opening of the long-dated G-Sec market to foreign capital is a genuine structural positive that will play out over months, not days.
The combination of a falling oil price and the RBI's capital measures is why India held up while US tech fell apart. WTI at $90, down from $105 a fortnight ago, directly improves India's import bill, the current account, and the inflation trajectory, even as the RBI flags imported energy costs in its forecasts. The relief on crude is real and it is the most important thing that went right for India this week.
Watch 23,200 on the Nifty. That is the level Gemini and the broader market are flagging as the next meaningful support. A break below it could invite deeper institutional selling. Holding it would suggest Indian markets can continue to decouple from US technology weakness, supported by lower oil and the new foreign capital framework.
Wednesday 10 June: US CPI (May). This is the single most important release of the week. After a jobs report that moved swaps to pricing a hike, the inflation print will either confirm or defuse that repricing. Consensus is looking for a firm headline number around 0.5% month-on-month. A hot print pushes yields higher and pressures expensive equities further. A cool print would ease financial conditions and could stabilise the tech selloff.
Thursday 11 June: US PPI (May) and the ECB decision. Producer prices lead consumer prices, so a hot PPI signals the CPI trajectory is uncomfortable regardless of this month's reading. The ECB meets the same day, with markets bracing for a possible rate hike after Eurozone inflation ticked up to 3.2%. A hawkish ECB adds to the global bond pressure.
Tuesday 9 June and through the week: Oracle and Adobe earnings. Major software results will test whether the AI selloff was specific to semiconductors or whether it spreads to the broader technology complex. Software has different economics to chips, and how these names trade will indicate how far the de-rating extends.
India CPI and IIP. May inflation data is critical after the RBI raised its forecast to 5.1%. A print near or above that level validates the RBI's caution. Industrial production will indicate whether the downgraded 6.6% GDP forecast is realistic or conservative.
FPI debt flows into the new G-Sec tenors. The most important India-specific thing to monitor is whether foreign capital actually takes up the newly opened 15, 30, and 40-year FAR bonds. Early uptake would validate the RBI's structural reform and support both the rupee and the bond market. This is a slow-moving story but a genuinely important one.
The oil and Iran thread. WTI at $90 is a meaningful improvement, but the path of the Iran conflict remains the swing factor. Reports of renewed hopes for a deal that could reopen the Strait of Hormuz drove crude lower this week. Any reversal in that diplomacy would push oil back up and undo the relief India just received.
For nine weeks I have written some version of the same observation: the market kept climbing because earnings were strong enough to overwhelm every macro risk. This week the logic finally inverted. The earnings were still strong. But a labour market too healthy to ignore moved the Fed conversation from cuts to hikes, and the most expensive part of the market could not survive that shift in the discount rate.
The important judgement now is whether this is a correction or a turn. The evidence points toward correction rather than collapse: the selloff was driven by valuation and rates, not by any deterioration in the underlying AI earnings, and an economy strong enough to make the Fed consider hiking is not an economy in trouble. But corrections become turns when inflation forces the central bank's hand, and we will not know which path we are on until the CPI data and Warsh's first meeting are behind us.
For Indian investors, this week delivered a genuinely favourable combination despite the global noise: oil fell to $90, the rupee strengthened, and the RBI opened the long-dated bond market to foreign capital. India held up while US technology fell apart, and the reasons it held up are structural rather than coincidental. The risk is external. If US inflation runs hot and drags global yields higher, the decoupling will be tested.
This is the week the market remembered that the discount rate matters as much as the earnings. Position for the possibility that the easy phase of this rally is over, without assuming the rally itself is finished.
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