The Dow Jones Industrial Average surged more than 700 points on Thursday, as a broad rotation out of artificial intelligence and semiconductor stocks propelled gains in healthcare and financial shares. The blue-chip index added 748.66 points, or 1.48%, to 51,435.73 by late morning in New York, while the S&P 500 slipped 0.10% and the Nasdaq Composite fell 0.78%. The divergence underscored a sharp shift in market leadership, with defensive and value sectors drawing buyers.
Broadcom Inc. (AVGO) weighed heavily on the technology sector, with shares plunging roughly 15% after the company reported a quarterly revenue shortfall. The decline dragged the S&P 500 technology index down 2.2%, and the Philadelphia semiconductor index lost 4.4%. Marvell Technology (MRVL) and Advanced Micro Devices (AMD) each dropped about 5%. Analysts attributed the sell-off to profit-taking and overstretched positioning, as well as a reassessment of geopolitical risks.
Oil Prices Slide Ahead of Jobs Data
Brent crude fell 2.93% to $94.94 per barrel, providing some relief to markets concerned about inflationary pressures. The decline in oil prices helped lift most stocks, though the S&P 500 remained in negative territory. Traders are closely watching the Federal Reserve's next moves, with a hot jobs report on Friday potentially reigniting rate-hike fears.
The 10-year Treasury yield hovered near 4.456%, reflecting cautious sentiment. The ISM Services PMI ticked up to 54.5 in May from 53.6, signaling continued expansion in the sector. However, prices climbed to their highest since August 2022, with petroleum-related products cited as a key driver of cost increases.
Broadcom’s AI Revenue Growth Fails to Impress
Despite Broadcom’s strong AI performance—CEO Hock Tan reported Q2 semiconductor revenue from AI of $10.8 billion, up 143% year-over-year, and projected Q3 AI chip revenue of $16.0 billion, up over 200%—investors were unimpressed. The stock’s decline reflected expectations that even robust AI growth may not be enough to sustain the sector’s lofty valuations.
Software and cybersecurity names also traded lower. CrowdStrike (CRWD) shares slid after the company posted a 15% jump in first-quarter operating expenses, driven by increased spending on AI and new products. CrowdStrike also announced a four-for-one stock split.
Economic Data Delivers Mixed Signals
Initial jobless claims for the week ended May 30 came in at 225,000, up by 13,000 from the prior week and above the 213,000 forecast. However, the four-week average remained low at 214,750. Economists expect Friday’s payrolls report to show 85,000 jobs added in May, with unemployment holding at 4.3%.
The mixed economic data has left traders uncertain about the Fed’s next move. A jump in oil prices due to geopolitical tensions, or a hot jobs report that stokes rate-hike fears, could derail the rotation into value stocks and drag chip names lower.
Market Outlook
Money is flowing out of overbought AI stocks and into healthcare, financials, and other Dow components. The rotation reflects a cautious tone ahead of the jobs report, which will serve as the next major catalyst for markets. Investors are also monitoring the Strait of Hormuz situation, as any prolonged disruption could push oil higher and reduce the likelihood of Fed rate cuts.
