Key Takeaways:
Jim Cramer said four pillars of his bullish outlook are weakening, citing a stronger-than-expected jobs report, the upcoming SpaceX IPO, Apple stock weakness, and the risk of additional AI equity offerings.
The S&P 500 fell more than 2% to near 7,427 on June 5 after a stronger-than-expected jobs report reduced the odds of Federal Reserve rate cuts.
"The hot jobs number takes rate cuts off the table for now," Liz Ann Sonders, chief investment strategist at the Schwab Center for Financial Research, told USA TODAY. "Inflation is being nudged higher by a broader array of forces than just the Iran war."
The Labor Department said U.S. employers added 172,000 jobs in May, while prior months were revised up by a combined 93,000. The Nasdaq Composite sank 3.5%, losing more than 900 points to trade near 25,893, while the Dow Jones Industrial Average fell 0.9% to about 51,094. The benchmark 10-year Treasury yield jumped 7 basis points to 4.553%.
Cramer's warning adds to a growing list of headwinds for equities. A Fed rate hike would make borrowing more expensive, while the SpaceX IPO could siphon capital from public markets and additional AI equity offerings risk oversupplying a sector already under pressure after the Philadelphia semiconductor index posted its fourth-worst decline ever.
Apple weakness and AI supply fears compound the selloff
Cramer pointed to weakness in Apple shares as a third drag on the Nasdaq, alongside the risk that AI-related companies may rush to raise capital through secondary offerings. On his June 8 Squawk on the Street appearance, he warned that parabolic AI stocks without accelerating earnings risk a 50% decline. "Unless you have accelerated earnings, your stock is pretty much done," Cramer said. "Got to go down 50% and then it doesn't come back."
The Philadelphia semiconductor index's sharp decline underscored the vulnerability of the AI trade. Micron Technology, up 203% year to date, saw its earnings quadruple over the same period — a case where earnings growth outpaced price appreciation. SanDisk posted even steeper acceleration, with EPS climbing from $1.22 to a guided $30-plus in nine months, while its stock rose 557%. Broadcom, by contrast, saw AI semi revenue accelerate from $8.4 billion to a guided $16 billion while its stock gained only 12% year to date, suggesting multiple compression rather than expansion.
By June 8, the S&P 500 had recovered to 7,410.20, up 0.66%, as semiconductor stocks led a rebound. Intel surged 10.85%, Micron gained 9.36%, and KLA rose 9.31%, while energy names lagged with Coterra Energy falling 8.62%. The Nasdaq 100 climbed 2.18% to 29,426.60, recouping some of the June 5 losses.
Yields rise as rate-cut expectations fade
The selloff in equities coincided with a backup in bond yields that tightened financial conditions. The 10-year Treasury yield's jump to 4.553% reflected investors pricing in a higher-for-longer rate environment. A stronger economy and rising prices will probably lead to a Fed rate hike sooner than later, several analysts said after the jobs report.
If the Fed raises rates, it will make borrowing more expensive for companies and consumers, potentially slowing the economic expansion that has supported corporate earnings. The combination of a hot labor market, rising yields, and frothy valuations in AI names creates what Cramer described as a multi-front challenge for the bull market.
This article is for informational purposes only and does not constitute investment advice.
