U.S. equities fell sharply on Thursday, driven by surging oil prices amid escalating Middle East conflict and investor caution over heavy artificial intelligence spending reported by major technology firms, according to market data. The Dow Jones Industrial Average dropped 506.93 points, or 0.97%, to close at 51,711.65, while the S&P 500 declined 1.21% to 7,408.30 and the Nasdaq Composite fell 2.15% to 25,137.69, weighed down by steep losses in Alphabet and Tesla shares.
Geopolitical Tensions Push Oil Prices Past $100 a Barrel
Crude oil markets surged after Yemen’s Tehran-backed Houthi militant group claimed attacks on two Saudi Arabian tankers in the Red Sea, raising fears of a broader regional conflict. Prices accelerated further following threats from U.S. President Donald Trump to strike Iranian infrastructure.
According to a post on Truth Social cited in market reports, President Trump wrote that any future attacks by Iran on a ship in the Strait of Hormuz using missiles, rockets, drones, or other weapons would result in the U.S. bombing and destroying “ONE BRIDGE OR POWER PLANT, including those located next to, or in, the Capital City of Tehran.” Axios subsequently reported that the president stated he was considering a “massive attack” on Iran that would be “bigger than ever before.”
Following these developments, Brent crude futures gained 7% to settle at $100.69 per barrel, while U.S. West Texas Intermediate (WTI) crude futures advanced 6% to settle at $92.19. Both benchmarks reached their highest trading levels since before the U.S. and Iran reached an agreement to end their war the previous month.
Did you know?
Both Brent and WTI crude closed at their highest price points since the conclusion of the recent conflict between the United States and Iran, according to market pricing data.
Treasury Yields Rise Alongside Energy Costs
Bond markets reacted immediately to the jump in energy prices and geopolitical risk. Treasury yields climbed across the curve, with the 10-year yield briefly topping 4.7% to reach its highest level since January 2025.
Short-term rates also pushed higher, as the 2-year yield touched a session high of 4.37%. Ross Mayfield, an investment strategist at Baird, noted to CNBC that the 2-year yield’s level holds particular significance for evaluating the Federal Reserve’s upcoming policy decisions.
CME FedWatch tool data indicates that fed funds futures trading now prices a more than 80% probability of an interest rate hike by the central bank in September, marking a sharp increase from 52% just one week prior.
“It’s pretty hard to ignore [the conflict], not just because of the oil prices but also because of the pressure across the yield curve,” Mayfield told CNBC. “The fundamentals, I think, set the market up to have some long-term sustainability, or at least medium-term. But for the next two to three months, it’s going to be all about Iran again.”
Big Tech Capital Expenditures Weigh on Equities
Beyond geopolitical pressures, stock indices faced downward momentum from major technology earnings reports. Alphabet shares dropped 7% after the Google parent company raised its capital expenditure forecast for 2026 to a range between $195 billion and $205 billion, up from its previous projection of $180 billion to $190 billion.
Alphabet attributed the upward revision to strong artificial intelligence demand. The increased spending plan exacerbated ongoing investor anxieties regarding the immense capital outlays required for hyperscale AI infrastructure. Other major hyperscalers, including Meta Platforms, Microsoft, and Amazon, also finished the trading session in negative territory.
Tesla Slumps Following Earnings Miss
Tesla shares fell 14% on Thursday following the release of the electric vehicle manufacturer’s second-quarter financial results. The company reported a significant earnings miss accompanied by operating expenses growing at a faster rate than revenue.
Both Alphabet and Tesla reported negative free cash flow for the second quarter, compounding the downward pressure on the tech-heavy Nasdaq Composite index.
Frequently Asked Questions
Why did U.S. stock markets fall on Thursday?
Equities dropped due to surging oil prices driven by Middle East conflict escalation, rising Treasury yields, and investor concerns over increased artificial intelligence spending and disappointing corporate earnings from Alphabet and Tesla.
How much did oil prices increase?
Brent crude futures gained 7% to settle at $100.69 per barrel, while U.S. West Texas Intermediate (WTI) crude futures rose 6% to settle at $92.19 per barrel, reaching their highest levels since the previous month.
What are analysts saying about Federal Reserve interest rate expectations?
According to CME FedWatch data cited by market analysts, traders currently price a more than 80% chance of an interest rate hike by the Federal Reserve in September, up from 52% a week prior, as yields rise across the curve.
Pro Tip for Investors: Monitor short-term Treasury yields, such as the 2-year note, alongside CME FedWatch projections to gauge shifting market sentiment regarding Federal Reserve monetary policy adjustments during periods of geopolitical volatility.
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