Too Far, Too Fast: Chip Crunch

U.S. equities endured a volatile week as a confluence of events sent the technology sector and semiconductor chips into a valuation crunch. After briefly touching an all-time high, markets reversed sharply on Thursday and Friday as disappointing semiconductor guidance, a blowout jobs report and renewed inflation concerns from the Middle East wiped out the early-week gains. The S&P 500 finished the week down roughly 2.5%, while the tech-heavy Nasdaq Composite shed approximately 4.7%. The Dow Jones Industrial Average was the relative outperformer, declining by just 0.2% as investors rotated into defensive and non-tech names. Small caps struggled as well, with the Russell 2000 dropping 3.0% as rising Treasury yields once again pressured rate-sensitive sectors.

Six of the 11 S&P 500 sectors finished the week in negative territory with the technology and consumer discretionary sectors both losing more than 5%. Diversified investors enjoyed the rotation as defensive sectors such as energy and health care rallied more than 2%. Wall Street’s fear gauge, the CBOE Volatility Index, surged 34% on Friday alone, closing above 20 for the first time in weeks.

The spark that ignited the selloff came from Broadcom (AVGO) following its second-quarter earnings report. On the surface, the results were impressive with revenue rising 48% year-over-year, while artificial intelligence (AI) semiconductor revenue surged 143% from a year ago. However, markets were laser-focused on what Broadcom didn’t say as the company declined to raise its full-year AI semiconductor revenue target of $100 billion. The reaction was swift with shares falling 20% over the following two days. In that short span of time, Broadcom lost roughly $450 billion in market cap, comparable to the size of Costco. The Philadelphia Semiconductor Index (SOXX) plummeted 10.4% on Friday alone for its worst single-day drop since March 2020.

Adding fuel to the fire was Friday’s better-than-expected employment report, taking the markets off guard. Nonfarm payrolls came in at 172,000, more than double the Dow Jones consensus estimate of 80,000, while prior months were revised higher by a combined 93,000 jobs. The unemployment rate held steady at 4.3%, and average hourly earnings rose 0.3% for the month, up 3.4% year-over-year. The problem investors found with the report is that good news is bad news in today’s environment. A labor market this resilient removes any urgency for the U.S. Federal Reserve (Fed) to lower interest rates, sending Treasury yields spiking higher. The 10-year yield rose back toward 4.5%, while the 30-year breached 5% once again.

The strong jobs data has materially shifted rate-cut expectations heading into the June 16–17 Federal Open Market Committee (FOMC) meeting, which will be the first under new Fed Chair Kevin Warsh. The probability of any rate action at the upcoming meeting is near zero, according to CME Group’s federal funds data. In fact, markets are increasingly pricing the possibility that the next move could be a rate hike instead of a rate cut. At the upcoming meeting we will be looking for any hawkish Fedspeak by Warsh that signals the direction of policy and will be closely watching how FOMC members alter their interest-rate projections. The ongoing U.S.–Iran conflict continues to be a sticking point as the ceasefire became even more fragile over the weekend with both sides exchanging strikes. West Texas Intermediate crude oil settled near $90 per barrel last week as the Strait of Hormuz remains closed, giving the Fed further reason to remain on hold.

Not everything fell apart last week. On Thursday, the Dow rallied to a fresh all-time high of above 51,000, as investors rotated aggressively out of chip names and into nontech stalwarts. Blue-chip stocks surged amid a flight to quality with UnitedHealth, JPMorgan and Eli Lilly all gaining more than 3%. The divergence beneath the surface of the major indices is hard to ignore. At one point the Dow was setting records, while the Nasdaq was free-falling. Adding to the pressure on tech, Meta Platforms (META) fell 7% Friday after the Financial Times reported that the company is exploring a stock offering of tens of billions of dollars, inspired by Alphabet’s recently completed $85 billion equity raise. Although the reports of a potential share sale are unconfirmed, it raises concerns on AI infrastructure plans when cash flows from business operations cannot cover the sizable investment. Currently, Meta has guided capital expenditures of up to $145 billion in 2026.

Volatility tends to feel worse than it is when you’re in the middle of it. The AI investment theme remains intact with investment accelerating and earnings reports showing underlying business are growing at a strong pace. Semiconductors and technology stocks went too high too fast since the March low of the market. Sector rotations seen last week are healthy pullbacks for markets that have gotten overextended. As always, stay diversified, resist the urge to chase and let your financial plan be your guide.

Investors will have no shortage of catalysts to navigate in the coming week. Front and center will be the May Consumer Price Index (CPI) on Wednesday, June 10. Investors will closely watch this report for clues of elevated energy prices impacting inflation ahead of the FOMC press conference on June 17. The Producer Price Index (PPI) follows on Thursday, June 11. Preliminary consumer sentiment data rounds out the week on Friday, June 13. On the capital markets front, all eyes will be on the anticipated SpaceX IPO pricing, which is on pace to be the largest public offering in history. Earnings season is winding down, but notable off-cycle reports include Adobe, Oracle, Casey’s, Cracker Barrel and Chewy. Fedspeak will be nonexistent with the central bank in a blackout period before its meeting next week.

Economic Calendar June 8 – June 12

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