U.S. stock indexes fell sharply from their records on Friday, pulling markets around the world lower, as a sudden retreat in the artificial-intelligence stocks that had powered months of gains met mounting unease in the bond market over oil-driven inflation. The S&P 500 dropped 1.2% from the all-time high it had set just the day before. The Dow Jones Industrial Average fell 537 points, or 1.1%, and the tech-heavy Nasdaq composite sank 1.5% from its own record.
The heaviest blows came from the same companies that had led the market upward. Nvidia, the chipmaker that has become synonymous with the AI investment boom, fell 4.4% and was the single largest drag on the S&P 500. It had entered the session with a year-to-date gain of more than 26%. Micron Technology, another semiconductor firm caught up in AI enthusiasm, dropped 6.6%, though it remains up nearly 154% for the year.
Brian Jacobsen, chief economic strategist at Annex Wealth Management, said the selloff looked like a market that had pushed into overbought territory. “To us, it looks like markets have pushed into overbought territory,” Jacobsen said, adding that the strong corporate earnings and durable U.S. economy that had carried stocks to records were still in place. “The path is unlikely to be smooth. Periods like this call for discipline more than hope.”
The AI reversal came as rising oil prices intensified worries about inflation. The war with Iran is continuing, and the Strait of Hormuz — a critical chokepoint for global crude shipments — remains closed to oil tankers, preventing deliveries to customers worldwide and pushing prices higher. Brent crude, the international standard, rose 3.3% to settle at $109.26 a barrel, well above the roughly $70 level it traded at before the war.
Those higher energy costs are rippling into the bond market. The yield on the 10-year Treasury note climbed to 4.59% from 4.47% late Thursday, a notable single-day move, and is now well above its pre-war level of 3.97%. The 30-year yield reached 5.13%, returning to territory last seen in 2007 before the financial crisis drove long-term borrowing costs toward zero.
Rising yields make mortgages, auto loans, and business borrowing more expensive, which can slow economic activity and tends to push down the value of stocks and other investments. Smaller companies felt the pressure most acutely: the Russell 2000 index of the smallest U.S. stocks fell 2.4%, double the S&P 500’s decline, because those firms often rely more heavily on borrowing to fund growth.
The drumbeat of better-than-expected economic data also helped lift yields by reducing the urgency for the Federal Reserve to ease policy. A Commerce Department report showed that U.S. industrial production rose more than economists had expected in April, while a separate survey indicated that manufacturing in New York state is expanding at a faster pace.
Traders have responded by abandoning nearly all bets that the Fed will resume cutting interest rates this year. Data from CME Group show they have begun building modest wagers that the central bank might instead raise rates in 2026 — a sharp reversal from the expectations that dominated early in the year. The Fed’s short-term rate, which it cut aggressively during the pandemic before raising it to fight inflation, has been on hold for months as policymakers wait to see whether price pressures ease.
The selling was not confined to the United States. Stock indexes across Europe and Asia fell by more than 1.5%. South Korea’s Kospi dropped 6.1%, one of the session’s largest moves, after briefly topping the 8,000 level for the first time earlier in the day. The index had surged this year on the strength of AI-linked firms such as SK Hynix, but it reversed course rapidly as momentum broke.
Jonathan Krinsky, chief market technician at BTIG, described Friday’s action as a warning about how abruptly tech-stock sentiment can shift. “If nothing else this should be a ‘shot across the bow’ for how volatility works both ways,” Krinsky said.