Wall Street ended lower on Friday, with the Nasdaq 100 slipping the most as rising bond yields reinforced expectations for another Federal Reserve rate hike. The S&P 500 closed down 0.25%, the Dow Jones Industrial Average eased 0.02%, and the Nasdaq 100 fell 0.70%, following a session in which early gains were pared as markets recalibrated after remarks from Fed Chair Warsh.
The move was tied to higher Treasury yields after Warsh reiterated that policymakers must be confident inflation can return to the Fed’s 2% target. At the same time, softer-than-previously reported labor market signals and weaker Chicago-area activity added to the uneven economic readthrough, while sector-specific pressure—particularly in chip and AI infrastructure—dragged on sentiment.
Key takeaways
- Price move: The Nasdaq 100 slid 0.70%, while the S&P 500 fell 0.25% and the Dow edged down 0.02%.
- Catalyst: Bond yields rose after Fed Chair Warsh emphasized the need to bring inflation back to target, lifting the probability of a next-month rate hike.
- Another headwind: Several risk-sensitive growth segments weakened, led by declines in AI-infrastructure and semiconductor stocks after earnings guidance missed expectations.
- Implication: Investors continued to balance “higher-for-longer” rate expectations against an improving earnings backdrop, leaving markets sensitive to any data that shifts the rate outlook.
What drove the move
Bond yields turned higher after Fed Chair Warsh said he was impressed by the economy’s apparent strengthening, but also argued that inflation data have not shown meaningful improvement toward the Fed’s 2% target. The market response was immediate: the chance of a rate hike at the next FOMC meeting rose to 57% from 36% before he spoke, according to the article’s market-probability update.
Treasury performance tracked that repricing. The 10-year T-note yield rose 5 basis points to 4.72%, contributing to pressure on equity valuations—especially in technology and other rate-sensitive areas.
Economic updates also fed into the day’s mix. According to the article, annual benchmark revisions to 2026 nonfarm payrolls showed an unexpected decline of 79,000 jobs, indicating a weaker labor market than previously estimated. Separately, the University of Michigan’s consumer sentiment index was revised upward for August, but inflation expectations were adjusted in a way that cut against the inflation-growth narrative: the 1-year inflation outlook was revised down to 4.0% from 4.3%.
On business conditions, the Aug MNI Chicago PMI unexpectedly fell to 47.1, the steepest pace of contraction in eight months, coming in below expectations for an increase. This combination—stronger sentiment but weaker labor and regional activity—left investors looking for clearer direction on the rate path.
Market reaction across sectors
While stocks initially climbed and the S&P 500 and Nasdaq 100 reached 1.5-week highs, the session ultimately reversed as bond yields pushed higher. The Nasdaq’s decline reflected continued sensitivity to tighter financial conditions.
Semiconductors and AI infrastructure were among the biggest drags. The article cited a roughly 10% slide in Marvell Technology after the company forecast third-quarter adjusted gross margin below consensus. Semiconductor exchange-traded exposure also fell, reflecting broad weakness among chip-related names.
Outside semis, cybersecurity shares moved lower as companies faced forecast pressure. Cryptocurrency-exposed equities also retreated after Bitcoin declined more than 3%, with multiple publicly traded holdings dropping sharply in the same direction.
Still, not all growth exposure weakened. According to the article, most of the Magnificent Seven technology stocks rose except Tesla and Nvidia, providing partial support to major indexes—helping explain why the Dow ended close to flat despite the broader risk-off tone.
Rates, inflation expectations, and what they imply
In fixed income, the article reported that September 10-year T-notes fell 15 ticks and that the 10-year yield rose 4.8 basis points to 4.724%. T-notes weakened after Warsh’s hawkish remarks, but losses were limited by the revisions and data showing a softer labor picture, along with an unexpected downward revision to 1-year inflation expectations.
Internationally, European government bond yields also moved higher. The article said the 10-year German bund yield rose to a 15-year high of 3.286% and closed at 3.279%, while the 10-year UK gilt yield rose to 5.063%. Investors were also pricing an ECB rate decision, with the article noting a 94% chance of a 25 basis point move at the September 10 meeting.
For equities, the core implication is that the market is still treating the inflation target as the key gating item for the Fed. Even with some labor and survey data softening, Warsh’s message kept the door open for additional tightening, which tends to raise the discount rate applied to future earnings—an especially relevant factor for high-growth, long-duration stocks.
Corporate moves and earnings signals
Earnings expectations remained a counterweight. The article pointed to a projected strong second-quarter earnings trajectory for the S&P 500, citing Bloomberg Intelligence estimates that earnings growth for the quarter was tracking near 32%, well above an outside-Covid historical average referenced in the report. It also said that AI spending was expected to be a major contributor, with AI infrastructure stocks projected to account for a significant portion of S&P 500 earnings-per-share growth in the period.
However, the day’s stock-level results underscored that investors are not treating earnings season as uniformly bullish. Guidance that runs below consensus—such as the semiconductor gross margin forecast cited in the article—was enough to trigger steep declines and spill into sector sentiment.
Next for markets, investors will likely focus on how incoming data shapes expectations for the next Fed decision. With the article noting markets pricing a 57% probability of a 25 basis point hike at the September 15–16 meeting, attention will also turn to upcoming inflation and labor updates and to further earnings reports—particularly from companies with guidance sensitivity to margin and demand assumptions.
