U.S. stocks plunge amid geopolitical tensions and Broadcom earnings spooking markets

Article by: Tide Research

Nine consecutive days of gains had almost caused the market to forget one thing: the U.S.-Iran war, which began three months ago, has not ended. On June 3, Iran launched 13 ballistic missiles and 17 drones at Kuwait, severely damaging Kuwait International Airport and killing one person. In response, U.S. forces struck Iranian military ground control stations on Qeshm Island in the Strait of Hormuz. WTI crude oil surged to $96, the 10-year U.S. Treasury yield rose alongside it, and S&P 500’s nine-day winning streak came to an abrupt end.

AI can create dreams, but missiles will wake you up.

On Wednesday, Wall Street collectively gave back its gains.

The Dow Jones fell 620.72 points (-1.21%) to 50,687.07, the largest daily decline among major indices. The S&P 500 dropped 0.74% to 7,553.68, ending a nine-day winning streak that began on May 21—the longest such streak since late 2024. The Nasdaq declined 0.89% to 26,853.98, while the Russell 2000 fell 1.25%, once again demonstrating that small-cap stocks are the most sensitive indicator of risk sentiment.

Just one day ago, the three major indices were all at all-time highs.

The sell-off on June 3 had a very specific trigger: Iran launched a large-scale airstrike on Kuwait in the early hours.

The Kuwaiti military confirmed that Iran launched 13 ballistic missiles and 17 drones, causing severe damage to Kuwait’s main international airport and resulting in one death. The Iranian Revolutionary Guard Corps subsequently acknowledged carrying out strikes on the headquarters of the U.S. Fifth Fleet and "a U.S. military facility in another country," without naming Kuwait. The Revolutionary Guard stated the action was in retaliation for U.S. military strikes on Qeshm Island.

On the U.S. side, the Central Command announced a precision strike on Iran's military ground control station on Qeshm Island. Qeshm Island, located at the entrance to the Strait of Hormuz, is a critical node in Iran's threats to commercial shipping.

On that day, Trump stated, "Iran has agreed not to develop nuclear weapons," but immediately added, "They can change their minds." On the same day, the U.S. House of Representatives passed a war powers resolution calling for an end to military action against Iran, symbolically rejecting Trump’s approach to warfare.

JPMorgan noted in its research report that the accelerated depletion of oil inventories "will ultimately force the Strait of Hormuz to reopen, by whatever means necessary," and estimated that navigation through the strait could resume within six months. However, for traders, the word "could" is not enough.

Direct result of the Middle East situation: WTI crude oil rose 2.41% to $96.02 per barrel, and Brent crude oil increased 1.89% to $97.81 per barrel.

Rising oil prices triggered a chain reaction: rising inflation expectations → the probability of a Fed rate hike by year-end remaining above 60% → further increases in the 10-year U.S. Treasury yield → pressure on high-valuation growth stocks. This传导链 has played out repeatedly over the past three months, but the market selectively ignored it during May’s AI frenzy. On June 3, reality delivered the bill.

The VIX volatility index rose sharply from the previous day’s range of 15–16, ending nearly two weeks of low-level trading. The fear gauge is breathing again, signaling a return of hedging demand.

Almost all 11 sectors of the S&P 500 suffered heavy losses.

The communications services sector remained the weakest of the week, with Alphabet continuing to face pressure amid the aftermath of its $80 billion share offering the previous day (-0.67%). Microsoft plunged 3.28% on the day, dragging down the technology sector. Financial stocks showed clear hesitation toward the rising interest rate environment as they awaited Friday’s non-farm payrolls data.

The software sector overall declined 2.43%. Palo Alto Networks (PANW), which surged 8% after hours the previous day, was sold off following open and closed down 4.37%. Despite beating earnings expectations, the impulse to realize profits was stronger. This movement itself suggests that the market has shifted from "buying the expectation" to "selling the fact."

The energy sector is likely one of the few sectors to close higher, benefiting from a sharp rise in oil prices. However, even so, overall market breadth was extremely weak—this was not a day of sector rotation, but rather a day of broad retreat.

The real blockbuster after hours on June 3 is Broadcom's (AVGO) Q2 earnings report.

The numbers themselves are not bad: total revenue of $22.2 billion, up 48% year-over-year, significantly accelerating from the 29% growth in Q1; adjusted EPS of $2.44, exceeding Wall Street’s expectation of $2.40; AI semiconductor revenue of $10.8 billion, surging 143% year-over-year to a record high, marking the 13th consecutive quarter of AI-driven growth. Free cash flow reached $10.26 billion, accounting for 46% of revenue. CEO Hock Tan provided a Q3 guidance of $29.4 billion in revenue, with AI chip revenue expected to exceed $16 billion, growing more than 200% year-over-year.

However, Broadcom plunged more than 8% in after-hours trading and was down about 5% as of press time. Market concerns center on two key issues:

First, total revenue of $22.187 billion was slightly below the consensus estimate of $22.27 billion, a difference of less than $100 million, or under 0.4%. However, for a stock trading at an 87x P/E ratio that has already risen 13.6% over five trading days, the margin for error is virtually zero.

Second, infrastructure software revenue (including VMware) was $7.178 billion, below the expected $7.32 billion. This segment is the strategic core of Broadcom following its $69 billion acquisition of VMware in 2023, and the market has independent growth expectations for it.

This is a textbook case of "buy the rumor, sell the fact." Broadcom’s AI business growth has been impeccable, but when a stock rises 13.6% in the five days leading up to earnings, all positive news is already priced in—any minor miss, even a single decimal point, becomes a reason to sell.

CrowdStrike (CRWD) also delivered a strong performance in its after-hours report: Q1 FY2027 revenue reached $1.39 billion (+26%), with EPS of $1.10, significantly exceeding the expected $0.88. Net new ARR totaled $256 million (+32%), setting a new quarterly record.

The management also announced a 4:1 stock split, with a record date of June 25 and trading to commence at the split-adjusted price on July 2. CEO George Kurtz characterized this quarter as "the moment when cybersecurity meets cutting-edge AI," stating that CrowdStrike has become "an AI security infrastructure."

Following the global outage last year, CrowdStrike has demonstrated its resilience with several consecutive quarters of strong performance. The stock split decision sends a clear signal: management is confident in the long-term trajectory of the stock price.

The ADP employment data and ISM services PMI for Wednesday have been released; the real showdown of the week will come on Friday with the May non-farm payrolls report.

Amid persistent inflation fueled by persistently high oil prices, the significance of employment data extends beyond "how the economy is doing" to "whether the Fed will be forced to raise rates." The JOLTS data showed job openings surged to 7.6 million in April—the highest in nearly two years and well above the expected 6.88 million—demonstrating the labor market’s resilience and leaving dovish voices nearly silent. If Friday’s nonfarm payrolls report comes in stronger than expected, U.S. Treasury yields could push further above 4.5%, placing even greater pressure on equity valuations.

Data sources: CNBC, Yahoo Finance, Bloomberg, NPR, BLS, TheStreet, JPMorgan Research Disclaimer: The views expressed in this article are those of the author alone and do not constitute investment advice. The market carries risks; investments should be made with caution.