Author: Davis Finke, CFA
Continued weakness in technology stocks weighed on markets this week, with both the S&P 500 and the tech-heavy Nasdaq finishing in the red. The Dow, which has much less technology exposure, was the only major index to finish the week higher. With the S&P 500 up more than 15% and the Nasdaq up more than 20% since the lows of March, it appears investors could be taking some profits as the Fed’s hawkish shift appears to have introduced a greater degree of caution toward technology stocks.
With much of the AI buildout being financed with debt, investors appear increasingly focused on the potential impact that higher interest rates could have on future profits, as the probability of a rate hike has increased significantly following the recent Fed meeting. Adding to that concern were recent announcements from Apple and Microsoft regarding price increases on select hardware amid rising memory costs. As investors reassess the durability of the technology sector’s recent momentum, market leadership seems to have shifted toward other sectors. Real estate and utilities each finished the week up more than 3%, while health care rose more than 7%, reinforcing the importance of maintaining diversification.
Despite this week’s pullback in the markets, economic data continues to reflect a resilient U.S. economy. This week’s updated GDP report for the first quarter showed that the U.S. economy expanded at an annualized rate of 2.1%, up from the previous estimate of 1.6%, as the contribution from net trade was better than initially estimated. In addition, personal income increased by 0.7% month-over-month, beating expectations of a 0.4% rise and improving from a flat reading in April. This also marked the strongest monthly gain since July 2025. Employment data showed a decline in initial jobless claims that came in better than forecast, and while continuing jobless claims increased, they remained well below historical averages. Taken together, the data continues to support the theme of low firings and low hirings.
Looking ahead to next week, new employment data will be the main economic headline. Data on job openings and job quits for the month of May will be released on Tuesday, while both monthly non-farm payrolls and the unemployment rate for June will be released on Thursday. With the Fed’s dual mandate of promoting maximum employment and stable prices, this data will be useful in further understanding the potential future path of monetary policy. Fed Chair Warsh is also scheduled to speak on Wednesday, which could provide additional clarity on the Fed’s inflation outlook as oil prices continue to fall.
