Major stock indices, including the S&P 500 and Nasdaq 100, saw substantial drops as a combination of rising oil prices and concerns over AI spending impacted investor sentiment on July 23rd. The S&P 500 fell 1.21% to 7,408.30, while the tech-heavy Nasdaq 100 slid 2.15% to 25,137.69. The Dow Jones Industrial Average also closed down 0.97% at 51,711.65. This downturn was exacerbated by a decline in the Magnificent 7 tech stocks, which collectively tanked 4% and lost $797 billion in market value, their biggest one-day drop since April 2025.
Oil prices surged above $100 per barrel, with Brent crude futures for September delivery closing at $100.69 per barrel (up 7.04%) and West Texas Intermediate (WTI) for September delivery rising 6.17% to $92.19. This increase was driven by escalating tensions between the US and Iran and Houthi attacks on tankers in the Red Sea. The rapid rise in oil prices reignited inflation concerns, leading to increased expectations for Federal Reserve rate hikes; the probability of a September rate hike jumped sharply to 82% from 52% a week prior. This also pushed the 10-year Treasury note yield above 4.7%, its highest level in 18 months.
Jitters over AI spending significantly contributed to the tech stock sell-off. Alphabet shares plunged 7.13% after the company raised its annual capital expenditure forecast for the year to $195 billion-$205 billion, up from $180 billion-$190 billion, to meet steep AI demand. Tesla also plummeted 14.52% after reporting disappointing second-quarter earnings and forecasting a "massive capex year." Other major tech companies like Meta declined 3.36%, Microsoft 2.24%, and Amazon 4.57%. Analysts, like Ken Mahoney, CEO of Mahoney Asset Management, expressed concern about the lack of clarity on the return on investment for such massive AI expenditures.
Despite the broad market sell-off, some areas showed resilience. The Philadelphia Semiconductor Index fell only 0.54%, with individual companies like Micron rising 3.2% and SK Hynix ADRs gaining 2.56%. However, regional chip bellwethers like Samsung Electronics Co. and SK Hynix Inc. both slumped about 7% in Asian trading. While the overall sentiment was negative, some analysts, such as Gerald Gan of Reed Capital, suggested that any short-term correction would likely attract dip buyers, indicating that the fundamental theme of AI investment remains intact, though valuations are under pressure.
