The S&P 500 and Nasdaq had their worst day of the year as strong US jobs data shifted expectations for Federal Reserve rate hikes. Here's what that means for New Zealand investors.
The S&P 500 fell 2.64 percent and the tech-heavy Nasdaq dropped 4.18 percent on Friday (US time) — the worst single-day performance for both indexes this year — as a surprisingly strong US jobs report shifted market expectations about what the Federal Reserve will do with interest rates.
The selloff was broad. According to RNZ's coverage of the session, investors sold stocks, bonds, bitcoin and gold, with the VIX — Wall Street's fear gauge — spiking 40 percent in a single session to its highest level in two months.
What triggered the move
The US economy added 172,000 jobs in May, according to the Bureau of Labour Statistics — nearly double what economists had expected. Prior months were also revised upward. The data suggested the labour market remains stubbornly resilient, which changes the calculus for the Fed.
Until recently, markets were pricing in rate cuts from the Fed later this year. Now, traders assign a 43 percent probability to a rate hike by December, up from 26 percent a month ago. That repricing drove Treasury yields sharply higher — 2-year yields hit 4.15 percent and 10-year yields reached 4.53 percent, the highest level in over a year.
Higher yields directly influence the cost of borrowing across the economy, including mortgage rates.
The AI trade unwinds
Much of the rally that preceded Friday's selloff was concentrated in artificial intelligence-related stocks. That concentration made markets vulnerable to a sharp reversal when a major semiconductor company, Broadcom, issued weaker-than-expected guidance for its chip business. Broadcom's shares fell nearly 13 percent in a single session, dragging other AI-linked stocks down with them.
What this means for NZ investors
For New Zealand investors with exposure to US markets — through KiwiSaver, index funds, or directly held US stocks — the immediate effect is a reduction in the dollar value of those holdings. The S&P 500 is denominated in US dollars, so even a moderate percentage decline translates to a real loss for anyone holding in New Zealand dollars, particularly if the NZD also weakens against the greenback.
When the Fed raises rates, the US dollar tends to strengthen. That can push the NZD lower, making imported goods more expensive and influencing the RBNZ's own rate decisions. For exporters, a stronger US currency is a mixed picture — it can support export revenues but also reflects weaker global demand.
The yield move is also relevant for NZ mortgage holders. US 10-year Treasury yields influence the rates banks charge for fixed home loans, even if the RBNZ's OCR decisions remain the primary driver in New Zealand.
Bitcoin and risk assets
In another sign of the broader risk-off mood, bitcoin fell below $60,000 for the first time since October 2024, dropping more than 17 percent during the week. The cryptocurrency selloff is consistent with the reassessment happening across global markets — when rate expectations shift higher, assets that benefited from low rates tend to come under pressure.
The broader picture
Markets had been on an unusually long winning streak. Nine weeks of consecutive gains for the S&P 500 is rare, and the speed of Friday's move — with the Nasdaq falling 4 percent in a single session — reflects how quickly positions can reverse when data surprises expectations. The concentration of gains in a handful of mega-cap tech stocks meant that when those stocks reversed, they took the broader market with them.
For NZ investors, the episode is a reminder that global markets can move quickly when economic data shifts expectations — and that AI-themed stocks, which have driven much of the recent global rally, are particularly sensitive to changing rate outlooks.
This article is for general information only and is not personalised financial advice. Seek advice from a licensed financial adviser (registered on the FSPR) for guidance specific to your situation.