Investors shifted away from technology shares towards cyclical stocks on Thursday after Broadcom reported weaker-than-expected earnings, raising fresh doubts about whether massive capital expenditures on artificial intelligence will deliver returns commensurate with recent valuations.
The Nasdaq 100 fell more than 1 per cent during the session, while the Dow Jones Industrial Average reached a record high and the Russell 2000 small-cap index advanced more than 1 per cent. Nine of the 11 major sectors posted gains, indicating a broad market rotation.
The shift was supported by falling Treasury yields, which declined after US unemployment claims came in higher than forecast. Initial claims rose to 225,000 for the week, the highest level since February and above the 213,000 expected by economists. Continuing claims fell to 1.777 million, below estimates of 1.780 million.
A ceasefire between Lebanon and Israel also contributed to declining crude oil prices and bond yields, further bolstering the case for cyclical equities.
Separate data from Challenger, Gray and Christmas showed layoff announcements rose for a third consecutive month in May, with AI cited as the leading reason for job cuts. Planned redundancies totalled 97,000, up 16 per cent month on month, with technology and AI roles comprising approximately 40 per cent of the total.
José Torres, senior economist at Interactive Brokers, said the tech sector layoffs appeared driven by financing pressures from heavy capital expenditure rather than cyclical weakness or worker displacement by AI systems. He noted that hiring intentions rose by 80,500, suggesting continued strength in the non-technology labour market.
Ahead of Friday’s nonfarm payrolls report, Torres forecast job gains of 120,000 with unemployment at 4.2 per cent, above consensus expectations of 85,000 and 4.3 per cent respectively.
Elsewhere, Australian trade data showed a return to surplus in April, with the country posting a $1.8bn goods surplus following a $1bn deficit in March. Eurozone retail sales volumes fell 0.4 per cent month on month in April, though rose 1 per cent year on year.