First, the US jobs data last Friday came in stronger than expected. I would expect a stronger-than-expected reading – combined with relatively soft wage growth – to echo not *that* badly across risk assets in a setup where rising inflation makes a Federal Reserve (Fed) hike increasingly likely. So expectedly, the strong US job additions report sent the US 2-year yield to 4.20% from around 4% before the data was released on Friday, and the latter hit global stocks pretty hard, starting with technology names.

The thinking was that rising borrowing costs reduce the present value of future earnings and can also weigh on investment spending. Both tend to hurt technology stocks more than other sectors because a larger share of their valuation depends on future growth.

But not only. Rising inflation expectations and borrowing costs have been in play for some time without necessarily bothering tech investors, meaning that the strong jobs data was not the only factor responsible for the Nasdaq’s nearly 5% slump on Friday. To give a broader context, VanEck’s Semiconductor ETF sold off more than 9%, Micron, the bellwether of the latest chip rally, tanked 13%, and the Korean Kospi, shouldered by memory chip makers Samsung and SK Hynix, is down by more than 5% at the time of writing – it again halted trading today, but this time because it was being sold too aggressively.

So, back to why. The bloodbath across tech is not only due to strong jobs data. As discussed on Friday, there are rumours that investors who rode the chip wave would be tempted to take their profits and free up cash to jump on the SpaceX IPO due later this week.

But more importantly, two major developments may justify the hefty slump across chip stocks since last week and threaten to deepen losses.

The latter, combined with Broadcom’s cautious revenue outlook for its AI chips, has taken a fair amount of air out of the balloon since last Friday. It remains to be seen whether this downside correction will continue or whether dip buyers will already take the opportunity to jump back in.

Obviously, given the strength and the size of the rally over the past months, a deeper correction would be needed to bring valuations back to healthier and more fundamentally meaningful levels.

Take Micron as an example: the company's trailing P/E ratio has climbed above 40x, around 143% above its 10-year median of 16.8x. If earnings were to remain unchanged, the stock would need to fall below the $400 mark to return to its historical average valuation based on trailing earnings. Of course, such a comparison ignores the significant earnings growth expected from the AI-driven surge in memory demand.

In fact, Micron's forward P/E stands near 8.5x, suggesting analysts expect profits to rise sharply in the coming quarters. As a result, a return to historical valuation multiples does not necessarily require a collapse toward $400. But if AI demand slows due to technological advances and/or slower adoption, we could see investor enthusiasm cool and pull Micron lower. Price-wise, a pullback toward $700 per share would relieve some of the pressure without damaging the medium-term positive trend.

The good news is that US futures markets don’t suggest an ugly start to the week despite the Asian technology selloff. Nasdaq futures are in positive territory into the European open.

For European indices, it’s another story. Stoxx futures are down by more than 1% on rising oil prices.

And for the US, sentiment remains fragile due to geopolitical concerns, higher energy price and rising yields. There are may factors in play into a big week in terms of geopolitical news, economic data and the SpaceX IPO. So, risks look two-sided.

Speaking of geopolitical news: the Middle East ceasefire looks increasingly fragile, with parties attacking each other – I wouldn’t call this a ceasefire anymore (nobody is ceasing fire). Crude oil is up by 4% this morning, fanning inflation expectations and pressuring yields higher.

Speaking of economic data: last week’s CPI report showed that higher energy prices pushed European inflation above the 3% mark and slowed growth: the euro area economy contracted by 0.2% in Q1 versus a meagre 0.1% expansion expected by analysts. The latter, combined with Friday’s stronger-than-expected US jobs data, pushed the EURUSD under a bus. The pair is flirting with the 1.15 support with room for further weakness on the back of a more hawkish shift in Fed expectations.

On Wednesday, the US will unveil its latest inflation data. US headline inflation in May is expected to have climbed to 4.2% due to energy price pressures, twice the Fed’s 2% policy target. A figure above the 4% mark would significantly strengthen the case for a rate hike this fall. Fed funds futures now assess nearly a 60% chance of an October hike.

Speaking of the SpaceX IPO: SpaceX is expected to price its IPO on June 11 and begin trading on June 12, making this week a key test of investor appetite for the largest IPO in history. Despite the hype, trading on Hyperliquid – a decentralized crypto exchange where traders can speculate on assets such as SpaceX through synthetic contracts – points to a more than 20% decline in the SPCX-USDC contract since June 1, hinting at some cooling in speculative enthusiasm ahead of the IPO, although it is not a reliable indicator of actual investor demand for the SpaceX listing.

The real test will be on Friday. I can’t wait.