US equities ended a nine-day run of gains as higher oil prices, hawkish Fed pricing and negative AI news weighed on risk sentiment. The S&P 500 fell 0.74% and the NASDAQ slid 0.89%, while the equal-weighted S&P 500 dropped 0.42%, pointing to a broad pullback rather than a narrow move. Broadcom’s outlook for AI chip revenue came in below estimates, sending its shares down more than 13% in overnight trading and adding pressure to the sector tone.
Leadership also weakened, with the Magnificent 7 down 1.25% and acting as a drag on the broader market, even as the Philadelphia Semiconductor index rose 1.39% to a fresh record. European equities moved lower across the board: the STOXX 600 fell 0.66%, while the DAX lost 1.31% and the CAC 40 declined 0.71%, with the FTSE MIB down 1.07%. Asian indices and Bitcoin also slipped, extending the risk-off move across global equities.
Shift in Market Sentiment and Defensive Positioning
We are seeing a clear shift in market sentiment after the nine-day winning streak in US equities ended. The combination of hawkish rate expectations and a disappointing AI revenue forecast has introduced caution. We saw the VIX spike over 15% to close at 16.5 yesterday, signaling that traders are actively buying protection for the coming weeks.
The underperformance of the Magnificent 7 is a primary concern, as these names have driven much of the market’s gains this year. The put-to-call ratio on the Nasdaq 100 ETF (QQQ) has now climbed to 1.3, its highest level since the market wobbled in late April 2026. This suggests we should consider defensive posturing, such as buying puts on over-extended large-cap tech names or selling out-of-the-money calls to hedge long positions.
Sector Rotation and Macro Headwinds
While a key AI player’s forecast caused a pullback, the broader semiconductor index hitting a new record high presents a nuanced picture. This suggests a potential rotation within the tech sector rather than a complete exit. We believe there may be opportunities in pairs trades, such as going long the SOXX ETF against a short position in specific, high-valuation AI software stocks that have run up significantly.
The macro environment is becoming less supportive, with WTI crude breaking above $85 a barrel and adding to inflation fears. With the next FOMC meeting just two weeks away on June 18th, fed funds futures are now pricing in less than a 20% chance of a rate cut before September. This backdrop justifies maintaining a cautious stance, as higher for longer rates will likely cap equity valuations.
