Wall Street suffered a broad sell-off on Thursday, with the Dow Jones Industrial Average dropping 507 points (1%) as a surge in crude oil prices above $100 per barrel and renewed anxiety over artificial intelligence spending weighed heavily on investor sentiment. The S&P 500 declined 1.2%, while the tech-heavy Nasdaq Composite led losses with a 2.2% slide.
Oil Rally Intensifies Inflation Worries
Brent crude futures climbed 7% to settle at $100.69 per barrel, marking the first close above $100 since May, while West Texas Intermediate crude advanced 6% to $92.19 per barrel. The spike followed claims by Yemen's Iran-backed Houthi group that it had attacked two Saudi Arabian oil tankers in the Red Sea, escalating geopolitical tensions in the Middle East. President Donald Trump's threats of further military action against Iran added to market jitters.
The rally in oil prices reignited fears that higher energy costs could keep inflation elevated, complicating the Federal Reserve's policy outlook. The benchmark 10-year Treasury yield jumped above 4.7%, its highest since January 2025, while the two-year yield rose above 4.36%. Fed funds futures now imply an 82% probability of a September rate hike, up sharply from a week earlier, though markets still expect the Fed to hold rates steady at next week's meeting.
Tech Stocks Hammered by AI Spending Fears
Technology shares came under intense pressure after earnings from two of the market's largest companies disappointed investors. Alphabet shares slid about 7% after the Google parent raised its 2026 capital expenditure outlook to between $195 billion and $205 billion, up from a prior forecast of $180 billion to $190 billion. The increased spending underscores the massive investment required for AI infrastructure but also fueled concerns about profitability and returns.
Tesla tumbled 14% after reporting a significant second-quarter earnings miss, with operating expenses growing faster than revenue and the company posting negative free cash flow alongside Alphabet. The weakness spread across the sector, with other hyperscalers including Meta Platforms, Microsoft, and Amazon also finishing lower. The Philadelphia Semiconductor Index traded lower as investors awaited Intel's earnings, while Texas Instruments shares declined despite issuing quarterly revenue guidance above analyst estimates.
For more on the broader market reaction, see our Evening Digest: Trump Escalates Iran Threats; Magnificent 7 Sheds $767B on AI Spending Fears.
Industrial Stocks Buck the Trend
Despite the broad-based losses, industrial stocks outperformed. Lockheed Martin raised its 2026 sales and profit forecasts, while Thermo Fisher Scientific gained after lifting its full-year earnings outlook. The CBOE Volatility Index rose to its highest level in nearly a month, reflecting heightened market uncertainty.
Investors are also watching the impact of rising yields on other asset classes. For context on how the oil rally is affecting precious metals, see Gold Slides Below $4,070 as Oil Rally Fuels Inflation Fears, Boosts Yields.
For a deeper dive into the tech earnings that drove Thursday's sell-off, read our analysis on Tesla Plunges 13% as Q2 Earnings Reveal AI Spending Surge and Negative Free Cash Flow and Alphabet Stock Slides as $205B Capex Plan and Negative FCF Overshadow Cloud Surge.
This article is for informational purposes only and does not constitute financial advice.
