Global markets were rattled as Brent crude oil prices breached $100 a barrel, fueling inflation concerns and driving Treasury yields to their highest points in the year. The S&P 500 plummeted 1.2%, marking its steepest decline in a month, while the Nasdaq 100 dropped 1.9% and the Dow Jones Industrial Average fell 1%. A gauge of megacap stocks experienced its worst day since April 2025, largely due to investor jitters over the costs associated with AI development and ongoing geopolitical tensions.
Several major tech companies were hit hard. Alphabet Inc. saw its stock sink 6.9% despite solid results, as concerns mounted over increased capital spending forecasts related to AI. Tesla Inc. tumbled 15% after reporting a profit decline and negative free cash flow for the first time in over two years, despite strong electric-vehicle deliveries. These declines, particularly from the "Magnificent Seven" companies, sparked worries about heavy AI spending impacting earnings.
The broader market decline was also attributed to rising inflation expectations and a hawkish shift in Federal Reserve rate hike probabilities. Money markets now show a roughly 35% chance of a rate hike in the upcoming Fed meeting, up from about 10% a week prior, with a full increase priced in by September. The U.S. 10-year Treasury yield reached 4.707%, its highest level since January 2025. This repricing of rate hike odds was further exacerbated by a robust jobless claims report, which showed the lowest number of claims since 1969.
Defense stocks, however, saw gains amid escalating geopolitical tensions. Lockheed Martin Corp. and RTX Corp. raised their full-year sales forecasts, benefiting from increased global defense spending. Conversely, American Airlines Group Inc. cut its 2026 earnings guidance for the second time in three months due to high fuel prices, hindering its efforts to catch up with rivals. Intel's shares were down before its earnings report, while analog chipmaker Texas Instruments similarly dropped despite exceeding sales forecasts, indicating a market preference for immediate earnings over future potential.
