Just when it seemed nothing could derail the great AI-fuelled bull market, the world reminded investors that it always has a trick up its sleeve. After a dramatic ride that took the S&P 500 from a war-induced low near 6,300 in March all the way above 7,600 for the first time in history just on 2 June, the index pulled back to around 7,266 on 10 June, with the Nasdaq 100 sliding to 28,500 from levels above 30,000 during the same period. Meanwhile, the VIX volatility index has climbed back toward 20. This rollercoaster ride has left many investors asking the same question: Is this a healthy pause in a structural bull market or the beginning of something more concerning? The honest answer, as is so often the case, lies somewhere in the middle, and in two sets of forces that are currently pulling in very different directions.
On one side sits the macro environment, where the Iran conflict, sticky inflation and a stubbornly patient Federal Reserve have combined to cap upside and keep valuations under pressure. On the other hand, there's the relentless AI-driven earnings cycle that has repeatedly confounded the bears and seen key indices rebound back from every drawdown faster than almost anyone expected. J.P. Morgan noted that the S&P 500's full recovery from its nearly 10% Iran war drawdown took just 11 trading sessions, a speed that speaks to the depth of structural demand underpinning the market. Whether that resilience holds through the current wobble will depend chiefly on the interplay between corporate earnings momentum and the interest rate outlook, both of which are developing fast.
Chips, concentration and the AI reality check
The proximate cause of this week's turbulence is well-defined. Broadcom's fiscal Q2 earnings beat on revenue and EPS, but its Q3 AI chip sales
of $16 billion fell short of the $17.2 billion analyst estimate, and the company declined to raise its full-year AI semiconductor forecast, triggering a "sell-the-news" reaction that sent Broadcom shares down 14% and created a ripple effect across the entire chip supply chain. Over just two trading days, Micron dropped 17%, AMD fell 12.6%, and Intel shed 9%, with the Nasdaq suffering its worst single session since the tariff turmoil of early 2025. What made the sell-off sting all the more was the uncomfortable backdrop it landed against: the Hormuz closure has been quietly applying pressure to the semiconductor supply chain for months. The blockade has choked off supplies of helium, aluminium, and liquid natural gas, all of which are critical for chip manufacturing.
Furthermore, spot prices for helium have doubled since the crisis began, air cargo capacity out of Gulf hubs has collapsed, and precision instrumentation shipments between Europe, Asia, and North America are experiencing significant delays. Against that backdrop, Broadcom's failure to raise its AI outlook wasn't just a guidance miss; it cast a shadow of doubt over the entire sector's near-term growth trajectory. Analysts at Evercore ISI had already flagged that "record concentration in a handful of AI names is spurring index strength and subduing the side effects of a challenging geopolitical and consumer backdrop," with Micron, Nvidia, and Google alone accounting for over 40% of the year's S&P 500 earnings revisions. That dynamic may well be a gift when the tide is rising, but it becomes a major liability the moment cracks begin to appear, as this week has demonstrated with some force. For now, the AI investment cycle remains structurally intact, but the market has served notice that it will no longer give the sector an unconditional free pass on guidance.
Rates, jobs and the Warsh wildcard
Beyond the chip sector, the broader macro picture offers its own blend of both promise and peril. The May nonfarm payrolls report came in at 172,000, well above the Dow Jones consensus of 80,000. At the same time, the unemployment rate held steady at 4.3%, and prior months were revised sharply higher. In normal circumstances, a labour market this resilient would be straightforwardly bullish for stocks. In the current environment, however, it hands the Fed another reason to wait before delivering a much-anticipated rate cut. The Federal Funds rate has been held at 3.5–3.75% for a third consecutive meeting, with April's decision producing the most divided FOMC vote since October 1992, and markets have fully priced out cuts for 2026.
Yet the plot thickens considerably at the Fed's next meeting on 16–17 June. New Fed Chair Kevin Warsh, who took the reins on 15 May under clear White House pressure to ease, will be making his first rate decision against a backdrop of a booming jobs market, elevated inflation, and an ongoing geopolitical crisis, which is far from the clean slate a new central bank chief might wish for. A dovish signal from Warsh, even a rhetorical one, could quickly reignite the bull case and send the indices back toward their highs. A hold with hawkish language, on the other hand, would compound the pressure from the chip sell-off and likely extend the current consolidation well into the summer. With Trump simultaneously teasing fresh Iran strikes and declaring a deal could be reached within days, the range of outcomes has rarely felt wider. Much will also depend on how inflation continues to develop. May figures show price pressure at 4.2%, which is more than double the Fed target. Hopefully, it's a short-term hike, but it will surely restrict Warsh's options unless it is soon rectified.