Federal Reserve Chair Warsh rattled equity markets on Friday, pushing the probability of a rate hike at the September FOMC meeting to 57%, up sharply from 36% before he spoke.
The S&P 500 Index (SPY) closed down -0.25%, the Dow Jones Industrial Average (DIA) fell -0.02%, and the Nasdaq 100 Index (QQQ) dropped -0.70% as bond yields climbed alongside rate hike expectations.
Warsh stated that inflation data does not suggest the trend has meaningfully improved, warning that policymakers must be confident inflation will return to the Fed’s 2% target, or the central bank has “work to do.”
The 10-year Treasury note yield rose approximately 5 basis points to 4.724%, reflecting the market’s recalibration around the prospect of tighter monetary policy next month.
Chipmakers bore the brunt of Friday’s selloff, with the iShares Semiconductor ETF (NASDAQ: SOXX) closing down more than -3%, dragged lower by a broad retreat across the sector.
Marvell Technology (NASDAQ: MRVL) led semiconductor losses with a -10% decline after the company forecast Q3 adjusted gross margin of 57.5% to 58.5%, with the midpoint falling below the consensus estimate of 58.4%.
ARM Holdings (NASDAQ: ARM) fell more than -6%, Lam Research (NASDAQ: LRCX) dropped more than -5%, and Nvidia (NASDAQ: NVDA) closed down more than -4% to rank among the worst performers in the Dow Jones Industrials.
PayPal Holdings (NASDAQ: PYPL) led losses across the S&P 500 and Nasdaq 100, tumbling more than -12% after reports surfaced that a consortium of Advent and Stripe had abandoned its pursuit of the company.
Cybersecurity stocks also came under pressure, with SentinelOne (NYSE: S) falling -5% after forecasting 2027 adjusted EPS of 30 to 32 cents, below the consensus estimate of 35 cents.
Cryptocurrency-exposed stocks slid sharply after Bitcoin tumbled more than -3%, with Iren Limited (NASDAQ: IREN) dropping more than -12% and MARA Holdings (NASDAQ: MARA) falling more than -10%.
Riot Platforms (NASDAQ: RIOT), Galaxy Digital Holdings (NASDAQ: GLXY), and Circle Internet Group (NYSE: CRCL) each closed down more than -8%, while Coinbase Global (NASDAQ: COIN) shed more than -6%.
Most of the Magnificent Seven technology stocks managed gains, providing some cushion to the broader market, with Amazon.com (NASDAQ: AMZN) rising more than +3% to lead Dow Jones Industrial gainers.
Apple (NASDAQ: AAPL), Alphabet (NASDAQ: GOOGL), Meta Platforms (NASDAQ: META), and Microsoft (NASDAQ: MSFT) each advanced more than +1%, while Tesla and Nvidia bucked the group’s positive trend.
Elastic NV (NYSE: ESTC) was a standout gainer, surging more than +19% after reporting Q1 adjusted EPS of 70 cents, well above the consensus of 59 cents, and raising its 2027 adjusted EPS forecast above analyst expectations.
Gap (NYSE: GAP) climbed more than +13% after raising its 2027 adjusted EPS forecast to a range of $2.35 to $2.45, up from a prior outlook of $2.30 to $2.40.
Economic data added further complexity to the market picture, with annual benchmark revisions showing an unexpected decline of -79,000 in 2026 US nonfarm payrolls, against expectations of a +183,000 increase.
The August MNI Chicago PMI unexpectedly fell -10.5 to 47.1, far below expectations of a rise to 57.9 and marking the steepest pace of contraction in eight months.
Offering a partial offset, the University of Michigan’s August consumer sentiment index was revised upward by +0.7 to 51.7, while one-year inflation expectations were revised down to 4.0% from 4.3%.
Despite Friday’s weakness, the broader earnings backdrop remains supportive, with S&P 500 companies tracking for nearly 32% earnings growth in Q2, well above the initial projection of +23%, according to Bloomberg Intelligence.
AI infrastructure stocks are expected to contribute nearly 60% of the S&P 500’s earnings-per-share growth in Q2, with 86% of the 486 companies that have reported Q2 results beating estimates, according to Bloomberg data.
