Key Highlights
Market Updates & News
  • The S&P 500 snapped a nine-week winning streak, while the Nasdaq posted its worst week in over a year as a blowout May jobs report prompted a hawkish repricing in Fed rate expectations.
  • Underwhelming AI revenue guidance from one of the largest chip designers triggered a more than 10% single-day decline in the Philadelphia Semiconductor Index, exposing a market in which semiconductors now make up over 18% of the S&P 500.
Tandem Strategy Update
  • Rollins announces a CFO transition as the current CFO leaves to pursue an AI data center venture… sign of the times?
  • The re-emergence of the New World screwworm puts Zoetis in the spotlight; Johnson & Johnson makes a $1 billion acquisition to bolster its oncology pipeline; and Microsoft is reportedly monetizing its custom in-house AI chips.

Market Updates & News

The S&P 500 snapped its winning streak last week after nine consecutive weeks of gains that helped launch the index from its March lows. A hawkish repricing in Fed expectations and a selloff in the technology and semiconductor space dragged major U.S. equity indices lower. The S&P 500 finished the week lower by 2.59%, while the Nasdaq Composite dropped 4.68% for its worst week since the April 2025 Liberation Day selloff. The Dow Jones Industrial Average was the relative outperformer of the major indices, slipping just 0.32%, while the small-cap Russell 2000 closed lower by 2.94%. Mega cap technology stocks and stocks caught up in the AI data center buildout trade bore the brunt of selling on Friday. The equal-weight S&P 500 finished the week down 0.50%, more than 200 basis points better than its cap-weighted counterpart, one of the wider single-week dispersions in some time. At the sector level, Energy, Healthcare, and Real Estate led the way as capital rotated under the surface of the market, while Consumer Discretionary, Information Technology, and Communication Services underperformed. Beyond equities, the de-risking extended across asset classes as gold finished lower by 5%, silver declined by 8.9% in its fourth straight weekly decline, and Bitcoin plunged 17% for the cryptocurrency’s worst week since November 2022.



Source: FactSet

Market breadth indicators, which we have highlighted in recent editions of Notes from the Trading Desk, continue to flash warning signs even as the S&P 500 marches to new record highs through early June. Despite the index hitting its most recent all-time high on June 2nd, the S&P 500’s advance/decline line remains below its February peak. This is a bearish divergence that points to a narrowing in market participation. Meanwhile, the percentage of S&P 500 stocks trading above their 50-day and 200-day moving averages both hover around 50%, levels that fall well short of the ~70% seen earlier this year prior to the March selloff.





Source: FactSet

Friday brought the release of the May non-farm payrolls report, which blew past consensus expectations. The U.S. economy added 172,000 jobs in May, more than double the consensus estimate of 85,000 additions, while the unemployment rate held firm at 4.3%. March and April’s numbers were also revised meaningfully higher, pushing the three-month moving average to its highest level since March 2024. The release followed strong reports earlier in the week on JOLTS job openings and ADP private payrolls. The bond market reacted sharply to the stronger than expected payrolls report. The yield curve flattened as the policy-sensitive 2-Year U.S. Treasury yield jumped 11 basis points to 4.15%, its highest level in 14 months, while the 10-Year U.S. Treasury yield traded back above 4.50%. According to the CME FedWatch tool, the roughly 60% probability of a single 25 basis point interest rate hike before Friday’s data was released jumped to one hike fully priced in with a 20% probability of two rate hikes by year-end. The shift in expectations puts further pressure on the new Fed Chair, Kevin Warsh, ahead of his first FOMC meeting that takes place next week.

Higher yields following the stronger than expected payrolls report on Friday morning certainly pressured stocks; however, layered on top of the macro-driven selling was disappointing forward guidance that hit at the heart of the AI trade. Broadcom reported fiscal second quarter results after the close on Thursday, and while the headline numbers were largely in line, management’s AI revenue guidance fell short of elevated investor expectations. The selloff in Broadcom shares sparked a wave of profit taking in the semiconductor and AI complex, leading to a more than 10% decline in the Philadelphia Semiconductor Index (SOX) on Friday, its worst single-day performance since the COVID crash in March 2020. Individual chip names, like AMD, Intel, Micron, and Qualcomm, posted double-digit declines across the board. The Roundhill Memory ETF (DRAM) fell 15% for its worst single-day decline since its creation in early April. SPX Put volume on Friday set an all-time record, a reflection of the rush to hedge against further downside and how overextended positioning had become.

Adding fuel to the AI angst was a blog post from Anthropic exploring the potential merits of slowing down the pace of frontier AI development. The post, which could be viewed as the incumbent looking to halt the progress of its competitors, also sparked conversations around “tokenmaxxing”, a workplace trend at large tech firms where employees and companies measure productivity by the number of AI tokens consumed. AI token usage leaderboards were reportedly published companywide at a handful of firms where the top AI-using employees were rewarded regardless of whether or not that usage resulted in value add to the firm. These programs obviously created perverse incentives that ended up being very costly to firms that embraced them. For example, Axios shared the story of an AI consultant who claimed a client spent $500 million in a single month because no one put usage limits on Claude licenses for employees. Elsewhere, executives at Uber confirmed the company burned through its entire AI budget in just four months. In an effort to manage skyrocketing inference costs, many firms are substituting lower-cost models, including increasingly capable open-source alternatives from Chinese AI labs like DeepSeek, in place of premium U.S. frontier models.



Source: Goldman Sachs, Bloomberg

The magnitude of Friday’s selloff is best viewed in the context of just how stretched positioning had become. According to Bloomberg, the Nasdaq 100 entered Friday more extended above its 50-day moving average than at any point since 2002. The Philadelphia Semiconductor Index (SOX) was more than 70% above its 200-day moving average, the widest margin since the top of the tech bubble. The chart above from Goldman Sachs shows the S&P 500 (black line) and the S&P 500 without AI stocks (blue line) since the Iran war began on February 27th through Friday’s close. The S&P 500 is up 7.34% over the period, while the S&P 500 excluding AI stocks has essentially gone nowhere. Put simply, the entire rally in the S&P 500 since the end of February can be attributed to AI stocks. The chart above also captures Friday’s selloff, where the S&P 500 fell 2.64% while the S&P 500 without AI stocks traded marginally higher. In other words, the entire selloff on Friday was driven by declines in AI stocks, showcasing just how significant the AI trade has become for the direction of the major indices.



Source: FactSet

Concentration within semiconductors has reached truly extraordinary levels. The semiconductor industry is notoriously cyclical, driven by shortages that eventually lead to capacity expansion which ultimately results in oversupply and downturns. As of last week, semiconductors and semiconductor equipment stocks accounted for more than 18% of the S&P 500’s total market capitalization. The semiconductor industry weighting is now more than triple the prior peak reached during the dot-com bubble in early 2000. Said differently, nearly 1/5th of every dollar invested in the S&P 500 today is allocated to a single, cyclical industry (semis) within a single sector (tech) in the most widely followed equity benchmark in the world. When positioning, valuations, and concentration reach extremes simultaneously, it does not take much of a catalyst to spark a sharp reversal. Friday provided a textbook illustration of that dynamic.

Looking ahead, SpaceX’s record-breaking IPO debut on the Nasdaq is set for this Friday under ticker SPCX. The IPO, which is expected to raise $75 billion at a $1.75 trillion valuation, would mark the largest IPO of all time. According to its S-1 filing, SpaceX generated $18 billion in revenue in 2025 with a net loss of $4.9 billion. At a $1.75 trillion valuation, the company is coming to market with a trailing price-to-sales ratio of nearly 100x and no price-to-earnings ratio (earnings are negative). Goldman Sachs is forecasting SpaceX’s AI-related revenue to grow 100-fold by 2030, while Morgan Stanley projects total company revenue to reach $3.4 trillion by 2040. It is worth noting that Goldman Sachs and Morgan Stanley are two of the lead bookrunners/underwriters of the IPO.

Late last week, S&P Dow Jones Indices formally announced that it would NOT change its eligibility criteria to fast track mega cap IPOs into the S&P 500. The decision means SpaceX, OpenAI and Anthropic will need to be public for at least 12 months and meet financial viability requirements, which include positive GAAP net income for both the most recent quarter and the trailing four consecutive quarters, to be included in the index. For cash-burning SpaceX, that could effectively delay potential S&P 500 inclusion for years. The decision stands in stark contrast to Nasdaq, which recently relaxed its criteria to enable fast-track inclusion of new mega caps within days of their IPOs.

Tandem Strategy Update*

In portfolio news, Rollins announced a CFO transition. The company’s current CFO, Kenneth Krause, will step down effective June 15th. The pest-control operator is promoting from within, elevating Chief Accounting Officer William Harkins to CFO. Krause is reportedly leaving to pursue an AI data center venture… sign of the times? Sticking with pests, the re-emergence of the flesh-eating New World screwworm in Texas, while grim for ranchers, is a potential tailwind for Zoetis. The animal health company is the maker of Dectomax-CA1, the only conditionally approved treatment labeled for the parasite in cattle.

Elsewhere, Johnson & Johnson announced the acquisition of privately held Firefly Bio for $1 billion in cash. The acquisition bolsters Johnson & Johnson’s oncology pipeline and ambition to develop targeted medicines for the most prevalent and hard-to-treat KRAS-driven tumors. Separately, The Information reported late last month that Anthropic is in talks to rent servers running Microsoft’s Maia 200 custom in-house AI chip. The report underscores the AI industry’s hunt for alternatives to Nvidia’s costly GPUs and Microsoft’s push to monetize its custom silicon.

On the transition front, transition speeds continue to run at an accelerated clip relative to history. New manager-traded accounts and accounts with recent deposits that have been under Tandem’s management for two weeks are just under 50% of the way transitioned to our strategies. By the one-month mark, new money is nearly two-thirds of the way in line and by the three-month mark, new accounts and deposits are over 80% of the way transitioned.

Source: Source of all data is FactSet, unless otherwise noted.

*The transition level activity taken by Tandem is applicable to new manager-traded accounts and new money in manager-traded accounts, not the composite or firm-wide level. New manager-traded accounts and new money in manager-traded accounts are not automatically invested on the first day. Rather, they are transitioned into our strategy over a longer time period that is dependent upon market conditions, this process differs from Tandem’s model-provided strategies, where money is invested on the day the account opens. Strategy level activity is applicable to the composite and action is taken at the firm-wide level.

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This audio/writing is for informational purposes only and shall not constitute or be considered financial, tax or investment advice, or an offer to sell, or a solicitation of an offer to buy any product, service, or security. Tandem Investment Advisors, Inc. does not represent that the securities, products, or services discussed in this writing are suitable for any particular investor. Indices are unmanaged and not available for direct investment. Please consult your financial advisor before making any investment decisions. Past performance is no guarantee of future results. All past portfolio purchases and sales are available upon request.

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