By Martin Baccardax
The thing about bull markets, especially those powered by investor momentum, is that they constantly ask questions that can't be satisfied by "more of the same."
Broadcom gave Wall Street a rare moment of tech sector clarity late Wednesday, topping second-quarter earnings forecasts but disappointing modestly on its near-term sales outlook. It was enough to pound the stock, which has added more than $260 billion in value over the past week, and drag a host of sector peers, and the broader markets, into the red.
CrowdStrike and Palo Alto Networks were caught in the downdraft, despite topping Street earnings estimates last night and boosting near-term revenue forecasts. The Nasdaq is looking at its first set of back-to-back declines since the middle of May.
And some are now wondering if the searing tech rally -- which has nearly doubled the value of the PHLX semiconductor index since the end of March, added 23% to an index of Magnificent Seven tech giants, and powered a 30% rally for the Nasdaq -- is starting to run out of gas.
"The broader industry message is clear," said Ruben Dalfovo, investment strategist at Saxo Bank. "AI remains a powerful demand driver. Data centers need chips and networking. Companies need better security. Customers want platforms that do more with fewer tools."
"But the easy phase of the trade may be maturing," he added. "The next phase is about execution, pricing power and cash flow, not just attaching AI to a slide deck and hoping the stock market applauds."
Markets are having a hard time expressing their gratitude to the tech sector this week, as pressures mount over the lack of a cease-fire deal between the U.S. and Iran, jobs and activity data suggest firming economic strength but keeping inflation pressures elevated, and bond investors holding yields at multiyear highs.
And that is starting to sow the seeds of a late spring retreat.
The S&P 500 information technology index fell 1.5% on Wednesday, after closing on Tuesday with a relative strength index of 82, well north of the overbought threshold of 80, and a 28% premium to its 200-day moving average.
"That has only occurred on ten unique periods since 1990; most recently June 2024, before that August 2020, and before that late December 1999," said Jonathan Krinsky, chief market technician at BTIG.
"There were some positive outcomes (May '95 and July '97), but most of the other occurrences saw meaningful consolidations or drawdowns over the next 40 trading days," he added.
Linh Tran, market analyst at XS.com, is also starting to sense a retreat is on the way.
"Investors have already priced in strong expectations around the AI theme, so any negative signal related to earnings, growth outlooks, or capital expenditure could trigger stronger selling pressure in the leading sectors," she said. "This makes technical pullbacks more likely, especially after a sharp rally."
Even Ed Yardeni, founder and president of Yardeni Research and holder of Wall Street's highest S&P 500 price target -- 8250 points by the end of the year -- is starting to feel unsettled.
"Yesterday, we raised the caution flag, suggesting a possible pullback over the next few weeks," he said, citing warnings on higher crude price from oil company executives, a Federal Reserve that's moving towards a rate-hiking bias, and a SpaceX IPO that could "cause lots of volatility if a price spike triggers a wave of profit-taking."
Untethered from the historic first-quarter earnings season, worried about the levels of AI spending, facing renewed risk, inflation, and rate-hike pressures tied to the war in Iran, and sitting on gains from the past 10 weeks that rival the best the market has generated, stocks are starting to feel vulnerable.
And Wall Street is still asking questions.
Write to Martin Baccardax at martin.baccardax@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
June 04, 2026 07:44 ET (11:44 GMT)
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