6th June 2026
The Nasdaq has had a very sharp reversal over the past few trading days, culminating in its worst session for more than a year on Friday.
The immediate trigger was a stronger-than-expected US employment report. The US economy created around 172,000 jobs in May, significantly better than many economists had expected. Normally, strong economic news would be welcomed, but the market interpreted it differently. Investors concluded that the US economy remains strong enough for the US Federal Reserve to keep interest rates higher for longer—or even raise them again later this year.
Higher interest rates tend to hit technology companies particularly hard because many of them are valued on expectations of strong profits many years into the future. When interest rates rise, those future earnings are worth less in today's money, reducing company valuations. This is why technology shares often fall much more sharply than the wider market when bond yields rise.
The biggest casualties were the semiconductor (chip) companies that have driven much of the market's extraordinary rally over the past year. Shares in companies such as Nvidia, AMD, Intel and Broadcom all suffered heavy losses, dragging the Nasdaq lower. The Philadelphia Semiconductor Index lost more than 10% in a single day, erasing around $1 trillion in market value across the sector.
Another factor was disappointment over Broadcom's results. Although the company reported strong earnings, investors had expected even stronger guidance given the enormous optimism surrounding artificial intelligence. When one of the AI sector's biggest companies failed to exceed those lofty expectations, investors began questioning whether the enthusiasm for AI shares had run ahead of reality.
The sell-off was also intensified by rising US government bond yields. Investors moved money into bonds because they now believe interest rates may stay elevated for longer. Higher bond yields make fixed-income investments more attractive compared with expensive growth stocks, encouraging investors to reduce their exposure to technology shares.
Geopolitical uncertainty also played a part. Continued tensions in the Middle East have made investors more cautious, although this was a secondary factor rather than the main cause of the decline.
Should investors be worried?
Probably—but not necessarily alarmed.
The Nasdaq had risen extremely strongly over recent months, largely driven by enthusiasm for artificial intelligence. After such a rapid climb, many analysts believed the market had become vulnerable to a correction. Friday's fall may therefore represent a combination of profit-taking and investors reassessing how much they are willing to pay for AI-related companies.
The key question over the next few weeks is whether this proves to be:
a healthy correction after an exceptionally strong rally, or
the start of a broader market downturn if interest rates continue to rise and corporate earnings disappoint.
At the moment, most market strategists lean towards the first explanation. The fundamentals of the major technology companies remain strong, but their valuations had become stretched after months of relentless gains. A sharp pullback is therefore not entirely unexpected.
For UK investors, this matters because many pension funds, investment trusts and global equity funds have substantial exposure to US technology stocks. If the Nasdaq enters a more prolonged correction, its effects are likely to be felt well beyond the United States.
[/b]Will UK Interest Rates Be Affected[/b]
The Bank of England does not set UK interest rates simply because the US Federal Reserve changes its policy. It sets rates based on UK inflation and the UK economy. However, financial markets are global, so what happens in the US often affects borrowing costs in Britain.
Here's why the recent Nasdaq sell-off matters.
The fall in the Nasdaq was triggered by stronger-than-expected US jobs data, which led investors to expect higher US interest rates for longer. That pushed up US Treasury bond yields. Since US government bonds are the world's benchmark, yields on UK government bonds (gilts) often rise in sympathy as global investors demand higher returns everywhere.
That has two important consequences for the UK.
First, fixed-rate mortgages can become more expensive even before the Bank of England changes Bank Rate. UK lenders price many mortgage products from swap rates and gilt yields, both of which are influenced by global bond markets. So if US yields keep rising, UK mortgage rates could remain elevated or even increase slightly regardless of the Bank's next meeting.
Second, the Bank of England will pay close attention if the stronger US economy and higher oil prices feed into higher global inflation. The Bank has already warned that uncertainty over energy prices, particularly because of the Middle East conflict, could require interest rates to stay higher for longer if inflation becomes embedded in wages and prices.
Will the Bank of England raise rates because of the Nasdaq?
No. The Nasdaq itself does not influence the Bank's decisions.
However, the same forces that caused the Nasdaq to fall—higher US bond yields, expectations of tighter monetary policy and concerns about persistent inflation—can also make the Bank of England more cautious about cutting UK rates.
At present, most economists expect the Bank to leave Bank Rate unchanged at its meeting on 18 June, although markets see a possibility of one or two increases later this year if inflation proves more persistent than expected.
My view
The bigger issue for the UK is probably not the Nasdaq itself but the bond market.
You've asked several times recently about oil prices, the Strait of Hormuz and energy costs, and I think those concerns tie together. If:
oil prices remain high,
US economic growth stays surprisingly strong,
and inflation remains stubborn on both sides of the Atlantic,
then the Bank of England may find it much harder to reduce interest rates than many homeowners had hoped. In that scenario, UK mortgage rates could stay around current levels—or even edge higher—for longer than markets were expecting at the start of the year.
Ironically, a falling stock market does not necessarily lead to lower interest rates. If markets are falling because investors fear higher inflation and higher borrowing costs, as appears to be the case now, then both share prices and borrowing costs can move in opposite directions from what many people would intuitively expect.