Author: Xiao Bing, Trend Research

On June 5th, US stocks experienced their worst day since the tariff crisis of April 2025.

The Nasdaq Composite Index plummeted 4.18%, closing at 25,709 points, losing more than 1,121 points in a single day. The S&P 500 fell 2.64%, closing at 7,383 points, marking its largest single-day decline since October. The Dow Jones Industrial Average dropped by 695 points (-1.35%), after having just reached an all-time high the day before. The VIX fear index surged 34% in one day, breaking through the 20 barrier, and the CNN Fear and Greed Index plummeted from "Greed" to "Fear."

Just 72 hours prior, on June 2nd, the S&P 500 had closed above 7,600 points for the first time. All three major indices were at historical highs. The market had risen for nine consecutive weeks, with everything appearing to be smooth, but everything reversed within 48 hours.

To understand this crash, we need to see how three triggers were ignited simultaneously.

First: Broadcom's earnings report exposed the first crack in the AI narrative

The story starts after the market closed on June 3rd.

Broadcom released its Q2 earnings report for the fiscal year 2026. On the surface, it was an impressive report: revenues of $22.2 billion exceeded Wall Street expectations; adjusted earnings per share were $2.44, also surpassing forecasts; AI chip revenue surged 143% year-on-year to $10.8 billion, far exceeding the company's own predictions.

The issue lay in the outlook for the next quarter.

Broadcom projected AI chip revenue of $16 billion for the third quarter. The consensus expectation among analysts was $17.2 billion. This gap of $1.2 billion might only trigger a mild correction in normal years, but 2026 is not a normal year.

Over the past year, the entire semiconductor sector's valuation was built on a core assumption: capital expenditures on AI infrastructure are limitless, and hyper-scale cloud companies (Google, Microsoft, Amazon, Meta) will buy computing power at any cost.

Broadcom's earnings report did not deny the high growth of AI, as a 143% year-on-year growth rate demonstrates strong demand. It merely suggested a possibility: the slope of growth may not be as steep as the most optimistic expectations.

More devastating details emerged during the earnings call. CEO Hock Tan admitted that Google might introduce more chip suppliers, meaning Broadcom is no longer the sole favorite. He also pointed out that the rapid growth of the AI chip business is diluting the company's overall gross margin.

For a stock that had risen 88% in the past year, and was already "priced for perfection," these signals were enough to trigger a sell-off.

Broadcom fell 12.6% on Thursday. By Friday, panic spread throughout the entire semiconductor supply chain: Micron Technology plummeted 13.2%, Marvell dropped 16.7%, Intel fell 11.3%, AMD dropped about 11%, ARM fell 12.8%, and Qualcomm dropped 11%. The Philadelphia Semiconductor Index plummeted 10.26% in one day, with all 30 component stocks experiencing losses.

On that day, US-listed chip companies collectively vaporized about $1.3 trillion in market value.

One critical detail: none of these plunging companies issued any bad news. Intel, AMD, Micron—they were only subject to investors "extrapolating" Broadcom's signals, wondering if a slowdown in AI growth for Broadcom meant that the entire AI supply chain needed to be revalued.

This is the opposite of "narrative Alpha." When a story is strong enough, all related assets will be swept in the same direction, regardless of their individual fundamentals.

Second: Too strong employment data became the market's poison

At 8:30 AM on Friday, the US Department of Labor released the non-farm payroll report for May: 172,000 new jobs were added, and the unemployment rate remained at 4.3%.

At first glance, this number seems mild. But in the face of expectations, it is a bombshell: the Dow Jones consensus expected only 80,000, with a Reuters survey median of 88,000. 172,000 is exactly double Wall Street's expectations.

What was even more unsettling was that the data for the previous two months was significantly revised upward: March was revised from 185,000 to 214,000, and April from 115,000 to 179,000, adding a total of 93,000 jobs. The average monthly addition over the past three months was about 188,000, far exceeding the Federal Reserve's internal estimate of 150,000 as the "breakeven line." As long as employment stays above this line, there is no reason to cut interest rates.

In normal economic logic, strong employment data is good news, indicating robust economic resilience, corporate expansion, and consumer spending.

However, the US in June 2026 does not operate under "normal economic logic."

Since the Iran War broke out at the end of February, the effective blockade of the Strait of Hormuz has driven up global oil prices. WTI crude oil was still above $92 per barrel on June 5th, and Brent crude surpassed $94. High oil prices have raised everything: from transportation costs to food prices, inflationary pressures have seeped into the economic bloodstream from the supply side.

Against this backdrop, a better-than-expected employment report conveyed a different message: the economy is too hot, hot enough that the Fed may not only refrain from cutting rates but could also be forced to raise them.

The bond market reacted faster and more honestly than the stock market. The yield on 10-year US Treasuries jumped from 4.47% to 4.54%, reaching the highest level since late May. The data from the CME FedWatch tool was even more startling: just a day earlier, the market had priced in about a 50% chance of a rate hike before the end of the year, but after the report, this figure surged to 73%, closing above 80%. Expectations for rate cuts nearly vanished.

This had dual destructive power for technology stocks.

The first layer was valuation compression. Tech stocks, especially high-growth AI-related stocks, heavily rely on discounted future cash flows for their valuations. When risk-free rates rise, the present value of future profits decreases. For every percentage point increase in interest rates, a growth stock with an expected price-to-earnings ratio of 40 might see its theoretical valuation shrink by over 10%.

The second layer is capital rotation. When bond yields rise above 4.5%, you can get a decent return without taking any risks. For investors who have already made considerable profits in AI stocks, selling overvalued tech stocks and moving into Treasuries to lock in profits becomes a simple math problem.

An interesting counterexample is that the Russell 2000 small-cap index rose 1.45% on the same day. Funds flowed out of overvalued large tech stocks and into more reasonably valued, less interest-sensitive small and mid-cap stocks. This differentiation itself shows that the market was not panicking to indiscriminately sell everything; it was merely repricing the portions of the AI story that had been pushed to extremes.

And beneath the surface of this large figure of 172,000 jobs, the quality of employment is also sending uneasy signals. Supporting this number were hotel workers (leisure hospitality +70,000), government employees (local governments +55,000), and nurses (healthcare +35,000); however, industries that truly reflect economic heat are shrinking: the financial sector lost 22,000 jobs, and employment in the information sector has decreased by 11% since its peak in November 2022.

Wage data is similarly underwhelming upon closer inspection. Average hourly wages grew by 3.4% year-on-year in May, which sounds good, but the April CPI had already reached 3.8%. Doing simple subtraction: real wage growth is negative. Nominal wages are rising, but purchasing power is shrinking. This is not economic prosperity; this is "the more you work, the poorer you get."

Third: The shadow of inflation from the Iran War lingers

The third clue acts more like an undercurrent; it may not trigger a crash by itself, but it amplifies the destructive power of the first two triggers.

On February 28, 2026, the US and Israel launched military operations against Iran. Iran immediately blocked the Strait of Hormuz, cutting off about 20% of the world's oil supply. The International Energy Agency characterized this as "the largest supply disruption in the global oil market's history."

Three months have passed, and the war remains ongoing. Although the US and Iran reached a framework for a temporary ceasefire last week, new variables in Lebanon have stalled a final agreement. Oil prices have retreated from the March high of $110, but WTI remains above $90, far exceeding pre-war levels.

This sustained high oil price poses a dilemma for the Fed. On one hand, the supply-side inflation caused by the war cannot be solved by monetary policy; raising rates will not reopen the Strait of Hormuz. On the other hand, if inflation expectations become untethered due to high oil prices, the Fed must respond.

The June FOMC meeting is approaching. The Fed's latest economic forecast summary still hints that the next step will be to cut rates, maintaining an easing bias. But the market has lost faith. Federal funds futures are pricing in a rate hike, not a cut. If the Fed is forced to shift to a hawkish stance in the June meeting, it would mark a formal end to the past two years of the "soft landing" narrative.

Citigroup analysts issued a warning on June 5th: the level of global stock market bubbles has reached the highest level since 2008.

When the foundation of the narrative begins to loosen

Separately examining these three triggers, we find that each attacks a different dimension of market confidence:

Broadcom's earnings report attacks the narrative of "AI growth knows no limits." It didn't say AI was bad; it merely suggested that growth may not always maintain an exponential rate. But when the entire sector's valuation is based on the assumption of "exponential growth," even a hint of deceleration is enough to trigger a collective revaluation of valuations.

The non-farm data attacks the expectation that "the Fed is about to cut rates." Over the past year, another pillar supporting stock market gains has been liquidity expectations. If the Fed not only doesn't cut rates but may raise them, then two pillars sustaining high valuations (the growth narrative and liquidity expectations) are both shaken.

The Iran War attacks the consensus that "inflation has been tamed." When oil prices remain above $90 and the Strait of Hormuz has not fully regained navigation, the specter of inflation lingers over the market, making every decision by the Fed more challenging.

The three combined create a dangerous feedback loop: slowing AI growth, pressure on tech stock valuations, rising rate hike expectations, increasing funding costs, further pressure on high valuation stocks, and spreading sell-offs.

The US stock market's crash quickly spread globally.

The KOSPI index in South Korea plummeted 5.54% on Friday, Samsung Electronics fell 6.4%, and SK Hynix dropped 9.9%. The Tokyo stock market also fell sharply. In Europe, ASML in the Netherlands fell 3.8%, and Infineon in Germany dropped over 6%.

The cryptocurrency market was also not spared. Bitcoin fell about 4% to around $60,000, Coinbase's share price fell 7.1%, and Strategy (formerly MicroStrategy) fell 6.9%. As risk assets retreated across the board, the "digital gold" narrative of the crypto market was once again tested by reality.

Gold futures dipped 0.35% to $4,489 per ounce, failing to play the traditional hedging role. In an environment with rising rate hike expectations, the appeal of non-interest-bearing assets is also declining.

Is this the beginning of the AI bubble burst?

This is the question everyone cares about, but the answer is not as straightforward as it seems.

The bearish arguments are clear: the Philadelphia Semiconductor Index's single-day plummet of 10% typically indicates a fundamental questioning of the growth assumptions of the entire sector. Marvell has lost over 16% in two days, and Micron has fallen 17% in the same period; this signals a shaking of faith.

But the bullish arguments are equally substantial. Broadcom's AI chip revenue grew by 143% year-on-year, and the full-year AI semiconductor revenue guidance still exceeds $56 billion. These are not figures that a bubble-bursting industry should produce. The question lies in the slope of growth: AI demand remains real and enormous, but can growth match Wall Street's wildest imaginations?

A more accurate characterization might be: this is a "valuation re-pricing," not a "narrative collapse." The market is waking up from the euphoria of "AI can make everything skyrocket" and beginning to examine more calmly which companies can genuinely profit from AI and which are merely hitching a ride.

The S&P 500 remains close to historical highs after the crash. It has retraced about 5% from this week's peak, which falls within the range of normal technical corrections historically. The real test lies in whether this pullback will stop at 5% or slide towards 10% or even deeper.

In the next two weeks, three key events will decide the market's direction.

First, the June FOMC meeting. Will the Fed continue to maintain that the next step is to cut rates, or will it formally shift to a hawkish stance? If the Fed acknowledges the possibility of rate hikes, the market may face another round of valuation compression.

Second, more earnings reports and guidance from AI companies. Broadcom has opened Pandora's box, and the market needs other AI winners (especially Nvidia) to confirm that the AI growth story is not over. The next earnings season will be a crucial validation window.

Third, the evolution of the situation in Iran. If a ceasefire agreement can eventually materialize, oil prices fall back below $80, and inflationary pressures ease, the Fed's policy room will greatly expand, and the market is likely to rebound quickly. If the war continues to drag on, everything will become more complicated.

The crash on June 5th serves as a warning, not a verdict. The underlying logic of the AI revolution has not changed; the demand for chips still exists; what has changed is the market's expectations for growth and the price investors are willing to pay for such expectations.

When the tide begins to recede, only then can you see who is swimming without clothes.

On June 5th, the tide itself is still present, just rising at a slower pace, but just that slow rise is enough to soak the shirts of those fully invested, such as the poor editor.