Wall Street looked set for a softer start on Thursday, with futures pointing lower as investors reacted to a sharp selloff in Broadcom and continued uncertainty surrounding geopolitical developments in the Middle East.
Technology shares were expected to bear the brunt of the pressure, with Nasdaq 100 futures down 1.2% ahead of the opening bell.
Broadcom (NASDAQ:AVGO) emerged as the key drag on sentiment, falling 14.6% in premarket trading despite delivering quarterly earnings that exceeded Wall Street forecasts.
AI Expectations Prove Difficult to Satisfy
While Broadcom’s second-quarter results came in ahead of analyst estimates, investors appeared underwhelmed by management’s decision to leave its long-term AI revenue outlook unchanged.
Chief Executive Hock Tan reaffirmed the company’s forecast of $100 billion in artificial intelligence chip sales, disappointing investors who had hoped for a higher target amid booming demand for AI infrastructure.
“Broadcom may have emerged as a key player in the booming AI infrastructure market, with a particular expertise in the custom chips increasingly being used by the likes of Alphabet and Meta,” said AJ Bell head of markets Dan Coatsworth.
He added, “However, just like its rival Nvidia, Broadcom is finding that meeting and even slightly beating forecasts is not enough when the market is holding it to such a high standard.”
The market reaction underscored how difficult it has become for leading AI-related companies to impress investors, even when delivering strong financial results.
Oil Retreat Offers Some Relief
The broader market mood was partially supported by falling energy prices following signs of diplomatic progress in the Middle East.
U.S. crude futures dropped more than 3% after Israel and Lebanon agreed to renew a ceasefire arrangement tied to the withdrawal of Hezbollah operatives from areas south of the Litani River and a halt to further attacks.
Lower oil prices helped ease concerns over inflation and reduced pressure on interest-rate expectations.
Focus Turns to U.S. Employment Data
Investors were also hesitant to make major bets ahead of Friday’s closely watched nonfarm payrolls report.
Ahead of that release, fresh Labor Department data showed an unexpected increase in first-time unemployment claims for the week ended May 30, hinting at a modest cooling in the labour market.
The employment figures are expected to play an important role in shaping expectations for Federal Reserve policy in the months ahead.
Previous Session Marked by Broad Market Weakness
Stocks finished lower on Wednesday as geopolitical concerns overshadowed recent optimism surrounding earnings and economic growth.
The Dow Jones Industrial Average fell 620.72 points, or 1.2%, to 50,687.07. The Nasdaq Composite lost 0.9%, while the S&P 500 declined 0.7%.
According to U.S. Central Command, American forces intercepted several Iranian drones and ballistic missiles before carrying out “self-defense” strikes on Qeshm Island following attempted attacks by Iran.
Despite the renewed military activity, investors have largely remained focused on the resilience of corporate earnings and economic indicators.
“For now, risk appetite remains supported, but with stretched valuations and shifting monetary policy expectations, markets appear increasingly sensitive to any signs that the earnings and growth story may begin to soften,” said Daniela Hathorn, Senior Market Analyst at Capital.com.
Services Activity Remains Strong
Economic data released on Wednesday provided some encouragement.
The Institute for Supply Management reported that its services PMI rose to 54.5 in May from 53.6 in April, exceeding expectations and indicating continued expansion in the sector.
Nevertheless, software companies came under heavy selling pressure, pushing the Dow Jones U.S. Software Index down 4%.
Gold miners also weakened as bullion prices retreated, while gains among semiconductor, biotechnology and energy stocks helped cushion the broader market decline.
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