Weekly Wrap

The stock market endured its toughest week in months, with a sharp Friday sell-off erasing early gains and leaving all the major averages in negative territory. The S&P 500 fell 2.6%, snapping a nine-week winning streak, while the Nasdaq Composite dropped 4.7% as technology stocks surrendered a significant portion of their recent advance. The DJIA proved relatively resilient, slipping just 0.3%, but still finished lower for the week.

At the heart of the decline was a dramatic reversal across many of the market's highest-flying technology and AI-related names. Earlier in the week, investors remained enthusiastic about the AI infrastructure theme, fueling strong gains in semiconductor, networking, optical, and software-related stocks. However, that leadership became increasingly fragile as the week progressed. A disappointing market reaction to Broadcom's earnings report on Thursday added to the pressure, sparking a sharp sell-off across semiconductor stocks and raising questions about whether expectations throughout the AI supply chain had become too elevated. By Friday, a stronger-than-expected May employment report reignited concerns that the Federal Reserve may need to keep monetary policy restrictive for longer, driving Treasury yields higher and triggering widespread selling across growth-oriented areas of the market.

The information technology sector fell 5.4% for the week, making it the worst-performing S&P 500 sector outside of the consumer discretionary sector (-6.2%). Semiconductor stocks experienced particularly volatile trading. The PHLX Semiconductor Index initially surged on continued enthusiasm surrounding AI infrastructure spending and strong corporate commentary but ultimately finished the week down 4.7%, including a stunning 10.3% plunge on Friday alone. Software shares faced similar pressure, with the iShares Expanded Tech-Software ETF retreating 5.7% after a strong start to the week.

The weakness extended beyond semiconductors and software. Mega-cap growth stocks that had powered much of the market's advance in recent months also came under pressure, reflected in the Vanguard Mega Cap Growth ETF's 4.2% weekly decline. Several of the market's largest technology and internet companies experienced bouts of profit-taking as investors reassessed valuations amid rising interest-rate expectations and growing volatility.

While technology struggled, investors increasingly sought shelter in more defensive corners of the market. Health care (+2.3%), real estate (+1.5%), utilities (+1.3%), and consumer staples (+1.0%) all finished the week higher. These groups benefited from rotational buying as investors reduced exposure to higher-beta growth stocks and gravitated toward sectors perceived as more stable amid rising market uncertainty.

Energy was another notable outperformer, gaining 2.5% despite significant volatility in oil markets throughout the week. Crude prices were driven by a rapidly evolving geopolitical backdrop involving Iran, Israel, and Lebanon, producing several large daily swings. Although oil prices eventually finished well below midweek highs, energy stocks still managed to outperform most areas of the market.

Market participation also deteriorated considerably as the week unfolded. The Russell 2000 fell 2.9%, while the S&P Mid Cap 400 lost 0.9%. Although both indexes showed periods of relative strength during the middle of the week, rising Treasury yields and worsening risk appetite weighed on smaller-cap stocks, particularly following Friday's employment report.

Beneath the surface, the week illustrated a meaningful shift in investor sentiment. Early optimism surrounding artificial intelligence, easing geopolitical concerns, and resilient economic data initially supported additional record highs for the major averages. However, stronger economic reports and a hotter labor market ultimately shifted attention back toward inflation risks and the possibility of higher interest rates for longer. That change in focus proved especially damaging for the market's most richly valued growth stocks.

The increase in volatility reflected that shift. The CBOE Volatility Index surged 40.4% to 21.51, highlighting a sharp rise in investor caution after months of unusually calm market conditions.

Ultimately, the week's decline was less about broad economic deterioration and more about a significant repricing of growth expectations. As Treasury yields moved higher and rate-cut hopes continued to fade, investors aggressively reduced exposure to the same technology and AI-related areas that had previously driven the market to record highs. The result was a sharp pullback across major growth sectors, a resurgence in defensive leadership, and the market's first meaningful setback in several months.

• DJIA: -0.3% week-to-date
• S&P Mid Cap 400: -0.9% week-to-date
• S&P 500: -2.6% week-to-date
• Russell 2000: -2.9% week-to-date
• Nasdaq Composite: -4.7% week-to-date

Monday: 

The major averages closed higher on Monday, with the S&P 500 (+0.3%), Nasdaq Composite (+0.4%), and DJIA (+0.1%) all setting fresh record highs during the session as investors navigated a sharp jump in oil prices and another round of AI-driven technology leadership.

Early trading was shaped by a surge in crude oil following reports that Iran had stopped messaging the U.S. in protest of Israel's strikes in Lebanon. Oil prices remained elevated throughout the session, although they pared their worst levels after President Trump stated on Truth Social that discussions with Iran were continuing "at a rapid pace." WTI crude oil futures ultimately settled up $4.77 (+5.5%) at $92.19 per barrel.

Despite the gains in the major averages, market participation was relatively narrow. The information technology sector (+2.5%) was the clear leader and provided much of the market's upside support. NVIDIA (NVDA 224.36, +13.22, +6.26%) and Microsoft (MSFT 460.52, +10.28, +2.28%) remained focal points after announcing a partnership to develop a secure Windows platform for on-device AI agents, while Dell (DELL 466.02, +45.11, +10.72%) also benefited from the news.

Elsewhere in the sector software stocks extended their recent momentum as well, with the iShares Expanded Tech-Software Sector ETF (IGV) jumping 5.9%.

Outside of technology and energy (+1.9%) sectors, the tone was less encouraging. Rising energy prices pressured several oil- and rate-sensitive areas of the market, limiting participation beneath the surface. The consumer discretionary (-2.6%) and utilities (-3.1%) sectors finished sharply lower, with nine total S&P 500 sectors posting a loss.

Broader market measures generally lagged the major averages despite the record highs, with the Russell 2000 (-0.5%) and S&P Mid Cap 400 (-0.1%) retreating modestly.

Corporate news contributed to several notable individual stock moves. MGM Resorts (MGM 50.69, +7.02, +16.08%) surged after confirming it received an acquisition proposal from IAC, while Taylor Morrison Home (TMHC 71.55, +13.05, +22.31%) rallied following Berkshire Hathaway Inc.'s (BRK-B 470.28, -4.21, -0.89%) agreement to acquire the homebuilder in an $8.5 billion all-cash transaction.

Separately, FedEx (FDX 338.49, -73.26, -17.79%) completed the spin-off of FedEx Freight (FDXF 149.53, -10.84, -6.76%), which began trading as an independent public company.

In conclusion, record highs across the major averages masked another session of narrow leadership, as enthusiasm surrounding AI-related technology stocks proved strong enough to overcome the headwinds created by higher oil prices and lingering geopolitical uncertainty.

U.S. Treasuries started June with losses in most tenors, though the market put up a fight, finishing the session closer to the day's opening levels than session lows. The 2-year note yield settled up four basis points to 4.05%, and the 10-year note yield settled up two basis points to 4.48%. 

Reviewing today's data:

• May S&P Global U.S. Manufacturing PMI - Final 55.1 (May Prelim was 55.3)
• April Construction Spending: 0.4% vs Briefing.com consensus of 0.3%; March was revised to 0.2% from 0.6%
  • The key takeaway from the report is that it included a sharp downward revision to growth rate from March (0.2%), resulting in a weak report overall. New single-family construction spending increased a solid 1.4% in April but was still down 2.9% year-over-year.
• May ISM Manufacturing Index 54.0% vs Briefing.com consensus of 53.1%; April was 52.7
  • The key takeaway from the report is that it continued showing some stagflationary elements for the second consecutive month, as employment remained in contraction—though at a slower rate—while the prices index only dipped slightly from its sharpest increase since early 2022.

Tuesday:

The stock market charted a mostly higher finish today, with the S&P 500 (+0.1%) and DJIA (+0.5%) extending their push into record territory, while the Nasdaq Composite's (flat) marginally higher finish resulted in a record closing high for the index. Today's action was driven by a rally across semiconductor and other AI-related names and a rebound across the broader market following yesterday's narrow tech leadership, though weakness across some of the market's largest names limited gains at the index level.

Alphabet (GOOG 358.39, -14.19, -3.81%) was a notable laggard, moving lower after announcing an $80 billion equity capital raise to fund the rapid expansion of its AI infrastructure footprint. While concerns around dilution and unprecedented capital spending hampered the stock, and the communication services sector (-2.6%), the market treated the news as a meaningful positive for several AI supply chain and data center beneficiaries.

Optical stocks such as Coherent (COHR 426.89, +63.99, +17.63%) and Lumentum (LITE 1029.15, +124.15, +13.72%) were among the best-performing S&P 500 names, while Corning (GLW 200.40, +23.70, +13.41%) also posted a double-digit gain.

Though not a component of the S&P 500, Marvell (MRVL 290.79, +71.36, +32.52%) rocketed to record highs after NVIDIA (NVDA 222.82, -1.54, -0.69%) CEO Jensen Huang delivered a rare and powerful endorsement at Computex in Taipei, calling Marvell the "next trillion-dollar company."

All told, the PHLX Semiconductor Index finished 5.9% higher, which helped balance out a 2.8% slide in the iShares GS Software ETF as software stocks retreated from yesterday's highs.

The information technology sector (+0.9%) finished the day firmly higher.

Elsewhere in the sector, Hewlett Packard Enterprise (HPE 56.14, +9.14, +19.45%) was a standout after an impressive beat-and-raise earnings report.

Meanwhile, the utilities sector (+1.9%) rebounded nicely from its weak showing yesterday, buoyed by Alphabet's assertion that it needs more compute capacity and the power to generate it.

Other outperformers include the materials sector (+1.2%), which was supported by leadership in steel names after the White House adjusted some tariffs on metals, and the industrials sector, which benefited similarly from a reduction of tariffs on agricultural equipment to 15% from 25%, with Deere (DE 579.25, +36.82, +6.79%) and Caterpillar (CAT 909.81, +44.45, +5.14%) both capturing solid gains.

Elsewhere, the energy sector (+1.0%) notched a similar gain as oil prices drifted higher throughout the session. Developments on the U.S.-Iran front were relatively muted today, though Israel has continued strikes in Lebanon.

In addition to the communication services sector (-2.6%), the health care sector (-1.0%) extended its slide, while the consumer discretionary sector (-0.7%) also lagged.

Outside of the S&P 500, the Russell 2000 (+0.9%) and S&P Mid Cap 400 (+0.9%) outperformed.

Overall, today's session underscored the market's continued confidence in the AI infrastructure theme, with capital flowing into semiconductor, optical, networking, and power-related names. That broadening AI trade helped offset weakness in several mega-cap stocks and supported another push deeper into record territory for the major averages.

U.S. Treasuries saved their best for the overnight trade, garnering support from sliding oil prices and an early indication that the U.S. stock market would open today's session with a negative bias. The gains seen overnight, however, would largely be retraced during the cash session when both oil prices and stock prices reversed course from their overnight disposition. The 2-year note yield finished unchanged at 4.05%, and the 10-year note yield settled down three basis points to 4.45%.

Reviewing today's data:

• April JOLTS—Job Openings 7.618 million versus upwardly revised 6.887 million (from 6.866 million) for March

Wednesday:

The major averages saw their push into record territory halted today, with the S&P 500 (-0.7%), Nasdaq Composite (-0.9%), and DJIA (-1.2%) all retreating from yesterday's record highs. The market faced a combination of pressures today, with mega-cap and select tech names facing some profit-taking after a strong stretch of leadership, while oil prices and Treasury yields rose in response to escalating geopolitical tensions.

Sector strength waned throughout the session, with six S&P 500 sectors finishing lower, three of which retreated by more than 1%.

The top-weighted information technology sector (-1.5%) was the worst-performing sector, making it difficult for the major averages to notch gains today. Semiconductor stocks faced some choppiness but turned in another relatively strong finish, with the PHLX Semiconductor Index gaining 1.4%. However, NVIDIA (NVDA 214.90, -7.92, -3.55%) lagged amid a weak showing from "magnificent seven" names today.

Microsoft (MSFT 427.59, -13.72, -3.11%) finished with a similar loss, though the broader software space was also under pressure today, with the iShares GS Software ETF (IGV 100.20, -4.53, -4.33%) extending yesterday's slide. Palo Alto Networks (PANW 280.43, -16.75, -5.64%) moved sharply lower despite turning in a strong earnings report.

Amazon (AMZN 250.02, -6.50, -2.53%) provided poor mega-cap leadership for the consumer discretionary sector (-1.1%), which also faced broad pressure from rising yields and a retreat in Ulta Beauty (ULTA 471.21, -23.66, -4.78%) despite a strong earnings report of its own.

All told, the Vanguard Mega Cap Growth ETF finished 1.1% lower, with some analyst commentary suggesting that mega-cap stocks could face some profit-taking as investors look for a source of funds for SpaceX (SPCX) and other upcoming high-profile IPOs.

Outside of the mega-cap space, the financials sector (-1.2%) also lagged, with festering private credit concerns weighing on asset manager names.

Meanwhile, the energy sector (+1.4%) captured the widest gain as crude oil futures settled today's session $2.25 higher (+2.4%) at $96.08 per barrel as the state of U.S.-Iran negotiations remains muddy, with reports of fresh strikes this morning testing the limits of the already tenuous ceasefire.

The consumer staples (+0.8%) and health care (+0.7%) sectors also notched solid gains as investors sought more defensive holdings today. Outside of the S&P 500, the Russell 2000 (-1.3%) lagged amid the step back in risk sentiment and rise across yields today.

The combination of oil-driven pressure, and pronounced weakness across the market's weightiest components, proved to be too much for the major averages to extend their record streak. However, with the S&P 500 still up in nine out of the last ten sessions, and the market demonstrating a propensity to buy any dips across growth-related names, sentiment remains largely intact in the near term.

U.S. Treasuries were under selling pressure today, as rising oil prices, new tariff proposals, and some solid economic data all converged to drive the view that the Fed won't be cutting the target range for the fed funds rate anytime soon. The 2-year note yield settled up four basis points to 4.09%, and the 10-year note yield settled up four basis points to 4.49%. 

Reviewing today's data:

• Weekly MBA Mortgage Applications Index -2.5%; Prior -8.5%
• May ADP Employment Change 122K (Briefing.com consensus 110K); Prior was revised to 105K from 109K
• May S&P Global U.S. Services PMI - Final 50.7; Prior 50.9
• April Factory Orders 4.8% (Briefing.com consensus 3.5%); Prior was revised to 1.8% from 1.5%
  • The key takeaway from the report is that the headline numbers masked a weak month for business spending, evidenced by the 1.0% decline in nondefense capital goods orders, excluding aircraft. To be fair, that decline followed a very strong 3.8% increase in March, so it could just be a natural pullback after a large increase.
• May ISM Non-Manufacturing Index 54.5% (Briefing.com consensus 53.6%); Prior 53.6%
  • The key takeaway from the report is the understanding that activity for the country's largest business sector picked up pace in May, notwithstanding higher prices that were reflected in the highest average 12-month reading (68%) since April 2023.

Thursday:

Stocks finished mostly higher today as rotational buying across the broader market helped offset a pullback in tech names. The weakness across technology stocks kept the Nasdaq Composite (-0.1%) without a gain for the day, but broader support sent the DJIA (+1.7%) to fresh record highs while the S&P 500 (+0.4%) also notched a decent gain.

Tech stocks were poised for a lower session following decisive moves lower from Broadcom (AVGO 418.91, -60.32, -12.59%), Ciena (CIEN 535.63, -84.74, -13.66%), and CrowdStrike (CRWD 719.09, -28.52, -3.81%) following their earnings reports.

Broadcom in particular set the stage for a weaker showing across semiconductor names, with the PHLX Semiconductor Index retreating 2.2%. However, it is worth noting that the index finished much improved from the early weakness that saw it retreat nearly 6% this morning.

Meanwhile, the consumer staples sector (-0.1%) was the only other S&P 500 sector to close with a loss as nine sectors finished at or above their baselines.

The health care sector was the top mover today as nearly all of its components traded higher, with managed care names such as Humana (HUM 349.89, +22.35, +6.82%) and UnitedHealth (UNH 396.47, +19.47, +5.16%) leading the advance.

The financials sector (+2.6%) posted a similar gain, with major banking names notching solid gains while asset managers such as Blackstone (BX 118.55, +8.27, +7.50%) traded even higher following a manageable BCRED redemption update that reassured investors about private credit flows and demand.

Notably, the financials and health care sectors are the worst-performing S&P 500 sectors on a year-to-date basis, highlighting the rotational aspect of today's action.

Elsewhere, the communication services sector (+2.1%) outperformed as investors bought into the recent dip in Alphabet (GOOG 369.37, +13.69, +3.85%) that followed the announcement of an $84.75 billion equity capital raise to expand AI infrastructure and compute.

Outside of the S&P 500, the Russell 2000 (+1.5%) outperformed as Treasury yields moved lower, while the S&P Mid Cap 400 (+0.4%) captured a more modest gain.

Overall, today's session reflected a healthy broadening in market participation, with investors rotating into financials, health care, and other previously lagging groups as technology stocks took a breather. The ability of the S&P 500 and DJIA to advance despite a notable semiconductor pullback suggests underlying market sentiment remains constructive, particularly as investors continue to buy weakness rather than retreat from risk assets.

U.S. Treasuries traded with a positive bias in the overnight session before losing some strength in the cash session. Yields, however, were still lower across the board, with the front end to the intermediate end of the curve exhibiting relative strength in a bull-steepener trade. The 2-year note yield settled down four basis points to 4.05%, and the 10-year note yield settled down one basis point to 4.48%. 

Reviewing today's data:

• Q1 Productivity-Rev. 0.3% (Briefing.com consensus 0.8%); Prior 0.8%, Q1 Unit Labor Costs-Rev. 1.8% (Briefing.com consensus 2.3%); Prior 2.3%
  • The key takeaway from the report is the understanding that productivity has picked up nicely from a year ago (+2.8%), while unit labor costs (+0.5%) have come down, tempering concerns about labor-based inflation pressures.
• Weekly Initial Claims 225K (Briefing.com consensus 216K); Prior was revised to 212K from 215K, Weekly Continuing Claims 1.777 mln; Prior was revised to 1.785 mln from 1.786 mln
  • The key takeaway from the report is that there isn't any concerning key takeaway. Granted, initial jobless claims—a leading indicator—were up from the prior week, but they remain at levels that are consistent with an otherwise solid labor market.

Friday:

The stock market faced a considerable retreat today, with losses across the S&P 500 (-2.6%), Nasdaq Composite (-4.2%), and DJIA (-1.4%), resulting in lower weekly finishes for each index. For the S&P 500, this week's lower finish ends an impressive win streak at nine weeks.

The major averages faced a combination of pressures today as tech stocks extended yesterday's slide, while the Employment Situation report for May (172,000; Briefing.com consensus 96,000) beat headline expectations by a wide margin, placing upward pressure on Treasury yields amid rising expectations for a rate hike. The CME FedWatch Tool now assigns roughly a 71% probability to a rate hike at the December FOMC meeting, up from around 50% yesterday.

Growth-oriented pockets of the market generally lagged as a result, which compounded with yesterday's selloff across semiconductor stocks. The PHLX Semiconductor Index finished 10.3% lower, weighing heavily on the information technology sector (-5.3%).

Weakness was broad across the semiconductor group, with Broadcom (AVGO 385.74, -33.17, -7.92%) extending its post-earnings skid, memory names such as Micron (MU 864.01, -131.99, -13.25%) facing double-digit retreats, and other large chipmakers, including Intel (INTC 99.17, -12.61, -11.28%) and NVIDIA (NVDA 205.11, -13.55, -6.20%), moving sharply lower.

Software stocks also lagged, with Oracle (ORCL 213.41, -22.93, -9.70%) a notable decliner ahead of its earnings report next week. The iShares GS Software ETF finished 4.2% lower.

The consumer discretionary (-2.4%) and communication services (-1.7%) sectors also lagged as their mega-cap components, including Tesla (TSLA 391.00, -27.45, -6.56%) and Meta Platforms (META 593.00, -34.57, -5.51%) faced sharp retreats of their own.

The Vanguard Mega Cap Growth ETF finished 3.7% lower, contributing to the underperformance of the market-weighted S&P 500 (-2.6%) compared to the S&P 500 Equal Weighted Index (-1.5%).

On the earnings front, lululemon athletica (LULU 114.23, -10.69, -8.56%) was a notable laggard in the consumer discretionary sector after cutting its full-year outlook.

More defensive-oriented pockets of the market did garner some rotational interest today, but it was nowhere near enough support to keep the major averages from a lower finish. The consumer staples sector (+1.6%) led the way, while the utilities (+0.8%) and health care (+0.7%) sectors also posted gains.

Elsewhere, the real estate sector (+0.7%) notched a similar gain, while the financials sector (+0.1%) finished slightly higher.

Outside of the S&P 500, the Russell 2000 (-3.5%) underperformed amid the spike in Treasury yields.

Overall, today's selloff reflected the combination of an ongoing unwind across semiconductor stocks and a sharp repricing of Fed expectations following the stronger-than-expected employment report. Rising Treasury yields amplified pressure on growth-oriented areas of the market, while the limited rotation into defensive sectors was not nearly enough to offset the broad weakness across technology and mega-cap stocks.

U.S. Treasuries finished the week with sharp losses in most tenors, sending the 2-yr yield to a fresh closing high for the year while yields in the belly finished at two-week highs. The 2-year note yield settled up 11 basis points to 4.16% (+4 basis points this week) and the 10-year note yield settled up six basis points to 4.54% (-2 basis points this week). 

Reviewing today's data:

• May Nonfarm Payrolls 172K (Briefing.com consensus 96K); Prior was revised to 179K from 115KMay Nonfarm Private Payrolls 120K , (Briefing.com consensus 89K); Prior was revised to 177K from 123K, May Unemployment Rate 4.3% (Briefing.com consensus 4.3%); Prior 4.3%, May Average Hourly Earnings 0.3% (Briefing.com consensus 0.3%); Prior 0.2%, May Average Workweek 34.3 (Briefing.com consensus 34.3); Prior 34.3
  • The key takeaway from the report is that it is manna for headline writers but still lacks some important sustenance to suggest it is a marker of an economy running on a full stomach. To wit: real average hourly earnings on a year-over-year basis are down 0.4%; there were job losses in the retail trade (-1,100), information (-2,000), and financial (-22,000) industries; and the percentage of unemployed workers for 27 weeks or more increased to 27.5% from 25.3%, which we will assume speaks to the difficulty of finding a new job with comparable compensation to the prior one.
• Consumer credit increased by $20.7 billion in April (Briefing.com consensus: $17.5 billion) following a downwardly revised $22.3 billion increase (from $24.9 billion) in March.
  
  • The key takeaway from the report is that revolving credit growth outpaced nonrevolving credit growth in April, suggesting households may be using short-term borrowing to offset pressure from slowing real income growth and depleted savings. If this trend persists, it could support spending in the near term but raise concerns about household balance-sheet stress later.