US stock market news: Why Nasdaq, S&P 500 witnessed its worst day of year - Factors behind fall

In an overnight trade on Friday, Wall Street took a steep fall, plunging to its worst single-day performance of the year. The market rout was largely driven by a selloff in technology and artificial intelligence (AI) stocks, compounded by rising US Treasury yields, geopolitical uncertainties and a stronger-than-expected May jobs report, fanning fears that the Federal Reserve might push forward with further interest rate hikes.

S&P 500 & Nasdaq

The S&P 500 tumbled 2.64% to close at 7,383.74, marking its sharpest single-day decline since October 10, 2025. This steep drop dragged the index into the red for the week and snapped an uptrend of nine-week winning streak.

While the tech-heavy Nasdaq Composite plummeted 4.18% to settle at 25,709.43 — its worst single-day fall since April 2025. Meanwhile, the Dow Jones Industrial Average, which carries less exposure to volatile tech names, still slipped 1.35% to finish the session at 50,866.78.

Key factors behind fall

AI and chip stock pullback: After riding high on an enormous rally, high-flying AI and semiconductor chip stocks lost their momentum, dragged the Nasdaq down for the third consecutive day, ending a prior nine-day winning streak.

Jobs report: According to the Bureau of Labor Statistics, payrolls surged by 172,000 in May, and the unemployment rate held steady at 4.3%. A strong labor market may give the Federal Reserve the green light to prioritise its inflation fight, raising the odds of yet another interest-rate hike later this year.

Treasury yields: As fears of a hawkish stance grew, US Treasury yields jumped higher. Bond prices and yields move in opposite directions, and Friday saw bond prices fall, making equities a less attractive bet, which put downward pressure on stocks.

Volatility and profit-booking: This wave of profit-booking triggered market swings. Wall Street's the VIX index, the fear gauge, jumped over 39% in a single day, signalling a pivot to market anxiety.

Geopolitical jitters: Beyond the economic data, global uncertainties also weighed on market sentiment. Tensions in West Asia flared up again after Hezbollah rejected a ceasefire agreement between Israel and Lebanon. Adding to the unease was a lack of clarity surrounding the US-Iran peace talks.