Stocks plummeted as investor concerns over artificial intelligence spending by major tech companies and rising oil prices took a toll on global markets. The S&P 500 dropped 1.2%, marking its worst loss in a month and placing it on track for its first back-to-back weekly decline since March. The Dow Jones Industrial Average fell 506 points, or 1%, while the Nasdaq Composite sank 2.2%. This market sell-off was driven by a combination of factors, including unexpectedly high capital expenditure forecasts from Alphabet and Tesla's first cash burn in two years, along with renewed geopolitical tensions in the Middle East pushing oil prices higher.
Alphabet saw its shares sink 6.9% after announcing a notable increase in its capital spending forecast, committing an additional $15 billion for AI initiatives, bringing its yearly total to $200 billion. Tesla's stock tumbled 15% as it reported a profit decline despite strong electric vehicle deliveries, also showing a cash burn for the first time in two years. These revelations from two of Wall Street's most influential companies, part of the "Magnificent Seven," spooked investors who are now scrutinizing whether high AI investment is leading to sustainable growth or simply weighing on profits. Other tech giants like Meta Platforms Inc., Microsoft Corp., and Amazon.com Inc. had previously indicated plans to spend as much as $725 billion this year on AI.
Brent crude oil prices surged past $100 a barrel, reaching $100.69 after jumping 7%, the highest since May. The price briefly touched $102 during intraday trading. This spike was primarily attributed to increased fighting in the Middle East, specifically attacks on two Saudi oil tankers in the Red Sea and concerns about Iran's near-closure of the Strait of Hormuz, which threaten to disrupt global oil flows. Rising oil prices spark inflation fears, potentially delaying or even prompting the Federal Reserve to hike interest rates. Money markets are now pricing in a roughly 35% chance of a rate hike in September, a significant increase from about 1% just a week prior. This sentiment also drove benchmark 10-year Treasury yields to 4.7%, their highest levels since January 2025.
