‘We didn’t see this coming’: Wall Street eats its forecasts as stocks sell off globally on fear of AI bubble ahead of SpaceX IPO

Good morning. On Fortune’s radar today:

Markets: Red alert over global selloff.

“We didn’t see this coming”: Economists are eating their job forecasts.

AI bubble fears are back on the table ahead of Friday’s SpaceX IPO.

Strip out AI and the growth story cracks.

“There be dragons”: BofA notes that inflation could surpass unemployment.

Meet the woman forced out of Goldman Sachs because she baked a lot of elaborate cakes.

There will be drama when the markets open in New York

Stocks are selling off globally this morning as unhappy investors see the price oil rising again—because of renewed conflict in the Middle East—and President Trump’s inability to rein in Israeli Prime Minister Benjamin Netanyahu. There’s also a total meltdown in semiconductor stocks—a bad sign for the SpaceX IPO on Friday. The VIX fear index is up 24% over the last five days. “There seems to be no single cause, rather a general sense of increasing risk,” UBS’s Paul Donovan said this morning.

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%. 

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........

© Fortune