S&P 500 slides 2.6% as Broadcom miss, jobs data fuel rotation

The S&P 500 suffered its worst week in two months after a tech earnings disappointment and a stronger-than-expected jobs report triggered a rotation out of growth stocks.

The S&P 500 fell 2.6% to 7,384 last week, snapping a nine-week winning streak after Broadcom's AI revenue guidance disappointed and May payrolls came in hot.

"The combination of a high-profile tech miss and a jobs number that pushes rate cuts further out forced a long-overdue rebalancing," said Michael Wilson, chief equity strategist at Morgan Stanley.

The Nasdaq Composite tumbled more than 4% from Tuesday's record high of 7,609.78, with the 14-day relative strength index collapsing from 75 — deep in overbought territory — to roughly 49 by Friday's close. The selloff was concentrated in technology and consumer discretionary, the two best-performing sectors since April, while consumer staples, utilities, real estate, healthcare and financials all posted gains. The Cboe Volatility Index surged above 22, its highest level in three months, as trading volume on the New York Stock Exchange ran 18% above the 20-day average.

The rotation leaves the S&P 500's 50-day moving average near 7,156 as the next critical support level. A break below that would shift focus to the 200-day at 6,858, a 7% decline from Friday's close. With the Federal Reserve's June meeting scheduled for June 16-17 and the May consumer price index due Wednesday, the next two weeks will test whether this is a routine mean-reverting pause or the start of a deeper correction.

Broadcom's AI Guidance Disappoints

Broadcom Inc. shares tumbled despite reporting a 48% surge in quarterly revenue to $22.19 billion, as investors focused on the company's decision to maintain its fiscal 2027 target of more than $100 billion in custom AI chip sales rather than raising it. The semiconductor giant posted adjusted earnings per share of $2.44, beating the $2.40 consensus, but revenue fell short of the $22.27 billion estimate. AI revenue jumped 143% to $10.8 billion, and the company forecast AI semiconductor revenue will grow 180% to $56 billion this fiscal year before climbing past $100 billion in fiscal 2027. Infrastructure software revenue rose 9% to $7.2 billion, missing the $7.3 billion consensus. Broadcom said it has locked in all key components to support its outlook, a competitive edge in a supply-constrained market.

Jobs Data Complicates Rate Path

The U.S. economy added 172,000 jobs in May, beating the consensus estimate and reinforcing the view that the labor market remains too tight for the Federal Reserve to cut rates this year. The 10-year Treasury yield jumped 12 basis points to 4.38% on Friday, while the dollar index rose 0.6%. The strong payrolls print followed a hot inflation reading earlier in the week, all but closing the door on a rate cut at the Fed's June 16-17 meeting. Market pricing now implies less than a 50% chance of a single quarter-point cut by December, according to CME FedWatch data. The May jobs data showed structural unevenness — gains were concentrated in leisure, hospitality and government — while the labor force participation rate and unemployment rate held flat and wage growth continued to slow, suggesting the labor market's underlying momentum may be weaker than the headline number implies.

AI Selloff in Historical Context

The current tech correction mirrors the July 2024 episode, when disappointing Google Cloud revenue triggered a reversal in crowded mega-cap tech trades, followed by yen carry trade unwinding and recession fears. In that instance, the Nasdaq recovered to new highs by October as earnings season confirmed AI-driven growth. Analysts at China Securities noted that 10% to 15% drawdowns in the Nasdaq — corresponding to its 60-day moving average — have historically marked the threshold for AI-related corrections, with 20 to 30 trading days of consolidation typical before a recovery. The next catalyst is July earnings season, when major tech companies will report quarterly results that will either validate or challenge the AI investment thesis.

Implications for Global Markets

The selloff extended to Asian markets Monday morning, with Japan's Nikkei 225 falling 1.8% and South Korea's Kospi dropping 1.5%, tracking the Wall Street decline. For Chinese A-shares, the external shock is likely to be a short-term sentiment drag rather than a structural reversal, as the fundamental drivers of AI-related demand remain intact. The rotation out of crowded tech positions may create entry points before the July earnings window, when both U.S. and Chinese technology companies are expected to report strong AI-related revenue growth.

This article is for informational purposes only and does not constitute investment advice.