• The S&P 500 declined 2.64% on Friday, a huge drop. The tech-heavy Nasdaq was even worse, down 4.18%. The Philadelphia semiconductor collapsed 10.26%. This morning, S&P futures rose 0.35% prior to the opening bell—perhaps suggesting that retail investors might once again step in to buy the dip.
• Brent crude was $97 per barrel this morning, up sharply on news that Iran and Israel had resumed bombing each other.
• In Europe, the Stoxx 600 was down 0.75% in early trading and the U.K.’s FTSE 100 was down 0.4% before lunch.
• Asia: South Korea’s KOSPI down an astonishing 8.29%. Japan’s Nikkei 225 was down 3.85%. India’s Nifty 50 was down 0.9%. China’s CSI 300 was down 2.14%. 
• Bitcoin was $63K.

Investors are still trying to digest Friday’s surprisingly strong U.S. job numbers, the question of whether the Fed will spoil all the fun by raising interest rates, and the bubbly prospect of three huge IPOs in the AI sector, coming this year. 

One thing is for sure: stock buyers sent a strong warning to the market that their patience is not limitless. They may have turned a blind eye to trade tariffs and the high price of oil until now, but they’re not going to ignore rising interest rates and low-quality AI financials.

What traders appear to be thinking is that the robust jobs number—payrolls rose 172,000 in May, far above expectations of around 88,000—will persuade the Fed that the economy is running hot, especially if inflation (currently 3.8%) moves up toward the unemployment rate (4.3%). A new consumer price index number will come out on Wednesday.

Most Wall Street analysts now say that any further Fed interest rate cuts are off the table, and many predict the central bank will raise interest rates later this year. That’s bad for stocks, because it makes new money more expensive—hence Friday’s massacre. 

It’s bad for bonds too, because higher interest rates make debt more expensive. That’s where the link to AI and tech stocks comes in. Google issued $85 billion in new stock last week and Meta is considering doing something similar. That came after both Meta and Oracle raised billions in private debt to fund AI data center buildouts. “Hyperscaler supply [of new debt] has reached $159 billion year-to-date, which is 91% of our $175 billion forecast for the full year,” Bank of America’s Yuri Seliger told clients recently. It was roughly $121 billion last year.

• Investors are saying, we’re not going to buy all of this just because you want us to. We can sell, too.
• President Trump said on Truth Social, “Growth does not mean inflation!” But he is virtually alone in believing the Fed should cut.
• ‘2026 is looking like 1999’: Top analyst fears bubble popping with investors and Wall Street out over their skis - Nick Lichtenberg

“We didn’t see this coming”

Economists were shocked by the jobs number on Friday. (Vanguard, for instance, forecast a gain of only 20,000 jobs.) “We didn’t see this coming,” Pantheon’s Samuel Tombs and Oliver Allen said in a hastily written email. “Payrolls have surprised the consensus to the upside for three straight months, a relatively rare occurrence which suggests the improvement is more than just noise ... the three-month average of private payrolls has picked up to 166K—its highest since June 2023—from 8K in February.”

This chart from Daiwa Capital Markets shows that the job market now appears to be in an upswing. Before the revisions, it looked rather flat:

Growth, yes, but it’s narrow and fragile

While that economic growth is nice, it also looks very narrow. All U.S. growth in private, non-real estate, investment is in decline—except for AI, as this chart from ING’s James Smith shows:

“The circularity [of the AI economy] is attracting more attention: the same handful of firms raising money, buying chips, leasing compute, and booking revenues off one another. That may not spell disaster,” he says “but the fact remains that if you strip out AI, the rest of U.S. private non-residential investment has been falling year-on-year for six straight quarters.”

And all the job gains came from just three sectors: leisure & hospitality, government, and private education and healthcare services. Only 10,000 other jobs were created outside those sectors, ING’s James Knightley noted. So there’s growth—but it is highly concentrated in just a few areas. “While this is a very good report at the headline level, the lack of breadth to the job creation story remains an important theme,” he says.

SpaceX IPO on Friday will be a huge test

At the same time, SpaceX, Anthropic, and OpenAI are all expected to go public this year. They are all AI companies (SpaceX contains the Grok AI model). SpaceX—which will launch its IPO on Friday—is not profitable and the other two are not expected to be, either. It’s not at all clear whether investors will welcome the excitement of these megacap companies or reject them as money-losing bubble stocks.

• SpaceX’s IPO will also be a massive selling event triggering big price dislocations across the stock market as investors dump shares to buy SPCX - Jason Ma
• AI’s mega stock deals raise specter of more shares than buyers - Bloomberg

“There be dragons”

Finally, Michael Hartnett and his colleagues at Bank of America pointed out in a note seen by Fortune that this week there is a chance the headline inflation rate could go above the unemployment rate—which is almost never good. If that happens, it would be only the seventh time since 1960. Those years ('66, '73, '90, '00, '08, and '21) featured “years of Fed hikes, and none remembered well on Wall Street,” he says. He also noted that the unemployment rate minus consumer price inflation “has [a] strong correlation with U.S. yield curve, and points to inversion.” Yield curve inversion—when investors become more afraid of the near-future than the long-term—is a traditional harbinger of recession.

• Trump stunned as stocks fall on great jobs report. Barclays explains why ‘we are entering the warning zone’ - Eva Roytburg
• Must read: Russia paused surveillance system after killing of Iran’s Supreme Leader exposed how AI can be used on CCTV data to target enemies - FT

NO THANK YOU

Private credit loses its appetite for tech

“Business development companies”—private credit lenders who give loans to non-public companies—are attracting a lot less money this year, in part because investors aren’t as enthusiastic about the number of tech companies taking on debt, according to Teri Seelig and her colleagues at KBRA. “Capital raises for the five largest perpetual-life BDCs declined more than 50% YoY, with aggregate fundraising decreasing to roughly $5 billion in 1Q26 compared to approximately $10.8 billion during 1Q25,” she said in an email to Fortune.

MORE FROM FORTUNE

‘Yet another way in which 2026 is looking like 1999’: Top analyst fears bubble popping with investors and Wall Street out over their skis - Nick Lichtenberg

Iran fires missiles at Israel in first such bombardment since ceasefire as Trump says ‘I’m not happy about’ Israeli strikes on Lebanon - the AP

Trump calls Iran war a ‘military exercise’ even as Hormuz fighting heats up and denies promising no new wars — despite repeated pledges - Jason Ma

The Strait of Hormuz is more open than previously thought as the U.S. shoots down Iranian drones threatening ships and provides ‘naval overwatch’ - Jason Ma

Elon Musk bullet-proofed his $1 trillion ‘Mars-shot’ pay at SpaceX after the epic battle over his $56 billion moonshot at Tesla - Amanda Gerut

OpenAI readies ‘superapp’ pivot ahead of planned IPO, FT reports - Bloomberg

OpenAI’s Sam Altman says his highly disciplined daily routine has ‘fallen to crap’—and now unwinds on weekends at a ranch with no cell phone service - Jacqueline Munis

CHART OF THE DAY

A lot of “announced” data centers haven’t actually been built yet

Goldman Sachs estimates that big tech hyperscalers will spend $7.6 trillion on AI capex through 2031. But Amanda Lynam and her Goldman colleagues note that announcing a deal to build a data center is very different from actually getting shovels into the ground. There’s a “backlog” of something like 3,500 data center projects that have been announced but are not yet built, her research suggests. 

NUMBER OF THE DAY

27%

The amount of global central bank reserves now held in gold, according to UBS and the European Central Bank. Central banks now hold more gold than U.S. government bonds, even though the dollar has been the world’s “reserve currency” for years. (And to be fair, it still is.) U.S. Treasuries are 22% of reserves and the euro is 15%.

THE FRONT PAGES TODAY

Trump says Netanyahu will have ‘no choice’ but to accept a deal with Iran - FT

Iran and Israel exchange strikes, threatening fragile ceasefire - CNBC

Trump tells Netanyahu not to strike Iran - Axios

The Hidden Figure With Close Ties to Bill Gates and Jeffrey Epstein - WSJ

Houthis to Impose ‘Complete Ban’ on Israeli Ships in Red Sea - Bloomberg

Scott Pelley on the Bari Weiss Era and His Last Days at ‘60 Minutes’ - NYT

ONE MORE THING

This woman was forced out of Goldman Sachs because her elaborate cakes might “reflect negatively on the firm”

Courtesy of Allison Sheehan

Allison Sheehan used to work in wealth management at Goldman Sachs and had a side hustle as a baker of elaborate cakes on TikTok, where she styled herself as the “Investment Baker.” She would document her 5 a.m. wake-ups to whip buttercream and put frosting on tiered heart-shaped cakes. She had around 1,000 social media followers and a growing list of notable clientele—including Goop, Valentino, Brooke Shields, and Gigi Hadid, according to Fortune’s Emma Burleigh.

But Goldman Sachs’ compliance team took issue with her use of the word “investment” in her social media handles and ordered her to take down every post. The company’s code of conduct instructs employees to avoid making content that “can reflect negatively on the firm,” Sheehan said. Eventually, Sheehan chose baking over Wall Street, and quit the bank.

Now, the 27-year-old’s Investment Baker socials are followed by tens of thousands, and her cake business is thriving as she pursues an MBA at Northwestern.