Fixed Income & Equities Markets Week in Review

Equity sentiment softened as the week progressed, with semiconductor and AI theme names coming under pressure late in the week. Given no meaningful change in the AI compute demand and AI capex backdrop, this could simply be a healthy consolidation following a couple of robust months of gains for AI-linked stocks. At the same time, although headlines around the U.S.-Iran conflict remained volatile, U.S. equities have continued to price in an eventual diplomatic off-ramp. Investors rotated out of technology stocks as the week progressed with the value, mid-cap, and small-cap all outperforming the Nasdaq Composite for the week.

The U.S.-Iran conflict remains unresolved with this week’s headlines remaining volatile. Tensions escalated over the weekend after both sides exchanged strikes and reports suggested Iranian negotiators had not recently been in contact with the U.S. Conversely, President Trump said talks were continuing “at a rapid pace.” Additional flare-ups were reported during the week, including U.S. strikes on Iranian ballistic missiles and drones, but the administration appears reluctant to materially re-escalate the U.S.-Iran conflict while negotiations remain active. After jumping higher early in the week, West Texas Intermediate (WTI) crude retreated to ~$91/barrel by Friday morning.

Semiconductor and AI-linked stocks extended their two-plus month run early in the week. Nvidia’s launch of a new PC chip designed to run AI agents helped boost its share price on Monday (+6%) and pushed major indexes to fresh all-time highs. The S&P 500 and Nasdaq Composite both closed at record levels on Monday and Tuesday, with the S&P 500 above 7,600 and the Nasdaq above 27,000. Technology momentum then faded. Rotation away from semiconductor and AI names was spurred at least in part by Broadcom’s quarterly results/guidance Wednesday afternoon that failed to clear a high bar. After gaining more than 8% week to date through Wednesday, the iShares Semiconductor ETF (SOXX) fell more than 2% on Thursday and was down over 7.5% as of Friday morning. Through Thursday’s close, the Energy, Industrials, Health Care, and Financials sectors led S&P 500 sector index gains, underscoring sector rotation beneath the index level.

Looking ahead, the SpaceX IPO is expected on Friday, June 12th. Investor interest is substantial, and the deal is expected to be followed later this year by other large offerings, including Anthropic and OpenAI. Additionally, this week Alphabet announced plans to raise roughly $85 billion through an equity sale. For investors, a lingering concern has been a potential equity supply shock. Funding these purchases could require institutional and retail investors to trim holdings in large-cap and technology positions, potentially creating temporary pressure across the broader market. One notable update this week: S&P Dow Jones Indices stated these mega IPOs would not be fast-tracked into the S&P 500 Index, meaning the companies would need to wait at least one year to qualify for inclusion under current eligibility rules.

Economic data continued to support a still solid macro backdrop. Both ISM Manufacturing and ISM Services PMIs topped consensus estimates and improved m/m, while May Nonfarm Payrolls rose 172,000, well above the 105,000-consensus estimate. Still, the market is faced with perhaps offsetting forces of sticky inflation and resilient U.S. economic growth. Reflecting that combination, the CME FedWatch Tool showed a 70% chance of at least one Fed rate hike by end of year. Treasury yields moved higher following Friday’s payrolls report, with the 10-year yield pushing back above 4.5%.

For next week, a key point of interest will be if late-week selling in technology extends ahead of the SpaceX IPO or whether investors use the weakness to add exposure. Given the narrowness of the past two months’ rally, a further broadening of participation could be a constructive development for the market.