The Dow had its worst day in a year in a session where worries about inflation trumped AI excitement.

The Dow Jones Industrial Average was down about 606 points, or 1.5%. The S&P 500 was down 0.7%. The Nasdaq Composite was down 0.4%.

It was the Dow's largest percent decline since March 2023.

The 2-year Treasury yield rose to 4.933%, erasing its May declines. The 10-year yield was up to 4.474%.

Nvidia’s latest earnings report crushed expectations and sent AI-linked stocks, especially in the chip sector, soaring. But the gains were quarantined to the S&P 500’s tech sector. The other 10 major S&P 500 sectors sank.

The latest PMI surveys came in hotter than expected Thursday morning, which sent much of the market tumbling.

“Selling price inflation has meanwhile ticked higher and continues to signal modestly above-target inflation,” said Chris Williamson, chief business economist at S&P Global Market Intelligence. “What’s interesting is that the main inflationary impetus is now coming from manufacturing rather than services."

Though the S&P 500 and Nasdaq initially held up Thursday thanks to the AI boost, the gains evaporated as selling in other parts of the market accelerated.

The surveys had traders rethinking odds of an interest rate cut in the next few months. Fed-funds futures now put a 48.4% chance that interest rates hold steady through September, according to the CME FedWatch Tool. Odds of a rate hike were at 0.4%. That compares to 32.4% of steady rates with zero chance of a rate cut seen just a week ago.