In the Markets Now: Selloff Summary for June 5, 2026

Equity markets fell on Friday as the prospect of higher interest rates met AI sector anxiety and sent investors into profit-taking mode.

What Happened?

The S&P 500 fell 2.6% on Friday June 5, its worst day since October 2025. The drop was led to the downside by Technology sector stocks, with the Nasdaq 100 off nearly 5% for its worst day since the April 2025 tariff episode.

Why Did It Happen?

In our view, there were two primary drivers of the selloff:

1. Better-than-expected job growth. The May nonfarm payrolls report showed better than expected labor market growth, with 172,000 jobs added vs. expectations for ~80,000. This is a positive for the U.S. economy and long-term health of the bull market, but reignited fears that the Federal Reserve might raise interest rates sooner than expected. That is, if the Fed is less concerned about the labor market, it has more room to focus on fighting inflation (as the lack of progress in Iran continues to pressure supply chains and crude oil prices). Higher interest rates, even if spurred by positive news, raise borrowing costs for consumers and businesses and make stocks less attractive relative to bonds.
2. Disappointing news from Tech giant. Broadcom, a major player in semiconductor design and AI hardware, reported financial results late in the week that disappointed investors. Despite robust earnings growth, guidance for future revenue fell short of expectations. This sparked a selloff in the semiconductor sector, which has become a much bigger part of key indexes in recent months. Broadcom has become a proxy for the “Big Tech” AI spending that has fueled the stock market in recent years. When the company fell short of sky-high expectations, it seemed to trigger profit-taking that spread across the semiconductor and AI-adjacent landscape.

Positioning. After major indexes recorded some of the best 40-day returns in the post-WWII era, positioning and sentiment were quite stretched (i.e., bullish). The central idea is that if most investors are already leaning in the same direction, the market can more easily run dry of new buyers, making it more vulnerable to any negative surprise. Momentum-driven trades are particularly ripe for sharp reversals. Leverage and algorithmic trading activity can accelerate these moves.

Perspective. Though the market had a rough outing on Friday, 5 of the 11 S&P 500 sectors finished the day higher and the Equal Weight S&P 500 (which eliminates the outsized effect of large Tech companies on the main, capitalization-weighted S&P 500) was only down 1.4%. The market’s increasing concentration in Tech stocks makes investors more vulnerable to AI-related uncertainty or weakness, but Friday was far from a broad-based “sell everything” type of liquidation. As for Tech and fears of a bubble popping, we should remember that the Nasdaq had double-digit drawdowns in 1997, 1998, and 1999 (while returning 350%+ over that period). Further, the current rally from the October 2022 low has been strong but still falls short (in both length and magnitude) of the average bull market since World War II.

Putting it in Perspective

Over the 50 years through the end of 2025, there have been:

• 379 days when the S&P 500 lost 2%or more (about 3% of trading days)
• 24selloffs that reached -10% or worse (i.e., corrections)
• 11 selloffs of about -20% or worse (i.e., bear markets)
• 6 recessions

And over those 50 years, the S&P 500 is up ~27,850% (or, 11.9% annually). 

More From Baird

• Market Gauge, Jun. 2025
• Weekly Update, 2026
• Five For Friday, Jun. 2026
• Key Takeaways, May 2026

Benjamin Graham:

“Successful investing is about managing risk, not avoiding it.”

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This is not a complete analysis of every material fact regarding any company, industry or security. The opinions expressed here reflect our judgment at this date and are subject to change. The information has been obtained from sources we consider to be reliable, but we cannot guarantee the accuracy. Market and economic statistics, unless otherwise cited, are from data provider FactSet.

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