Dow jumps 1.7% to record as Nasdaq slides on chip selloff

The Dow Jones Industrial Average jumped 1.7% to a record close while the Nasdaq 100 slid 0.8%, the widest divergence between the two indexes in over a year.

"The market is pricing in a classic rotation — out of the AI trade that has dominated for months and into the value and small-cap names that benefit from de-escalation," said Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets.

The S&P 500 edged up 0.3%, masking a 1.9% gain in the energy sector and a 1.3% rise in financials against a 1.5% decline in information technology. The Russell 2000 index of small-cap stocks climbed 1.3%, its best session in three weeks. About 1.1 billion shares changed hands on the New York Stock Exchange, in line with the 20-day average.

The rotation threatens to unwind a technology-led rally that has powered the S&P 500 to 15 record closes this year, with the AI trade facing its first serious test after Broadcom's disappointing results raised questions about the sustainability of artificial intelligence spending.

The 10-year Treasury yield held above 4.49%, up five basis points, as traders reduced allocations to rate-sensitive growth stocks. Gold rose 1.7% to $4,505.35 an ounce, while oil slipped as optimism over a potential resolution to the Iran conflict pressured crude prices. The U.S. dollar index edged up 0.3% to 99.52.

The rotation was fueled by two competing forces. On one side, easing tensions in the Middle East — after the U.S. announced a ceasefire agreement between Lebanon and Israel contingent on Hezbollah halting attacks — boosted cyclical sectors tied to economic recovery. On the other, Broadcom's quarterly results disappointed investors, triggering a selloff in semiconductor stocks that dragged down the broader technology sector.

The move also unfolded against a backdrop of mixed economic signals. The Federal Reserve Bank of New York's Global Supply Chain Pressure Index remained elevated at 1.77 in May, suggesting inflation pressures will persist. The OECD warned that global economic growth would slow to 2.8% this year from 3.4% in 2025, assuming a resolution to the Iran conflict, with the risk of a sharper deceleration if disruptions continue. Rising jobless claims and a wave of AI-driven layoffs added to concerns about the labor market, giving investors further reason to rotate out of high-multiple technology stocks.

The next major catalyst for markets comes next week, when the Federal Reserve releases its June interest rate decision, with traders pricing in a 65% probability of a hold.

This article is for informational purposes only and does not constitute investment advice.