Stocks Fall Sharply as Crude Oil Prices Soar and Alphabet Sparks AI Spending Concerns

The S&P 500 Index ($SPX) (SPY) on Thursday fell -1.49%, the Dow Jones Industrial Average ($DOWI) (DIA) fell -1.11%, and the Nasdaq 100 Index ($IUXX) (QQQ) fell -2.26%.  September E-mini S&P futures (ESU26) fell -1.50%, and September E-mini Nasdaq futures (NQU26) fell -2.23%.

Stock indexes fell sharply amid a double whammy of soaring oil prices and a decline of -7% in Alphabet following its earnings report released after Wednesday's close.  Alphabet raised its capital spending forecast for this year to $205 billion from $190 billion, spending more than double its 2025 capital spending and raising concern that the company will struggle to earn a sufficient return on its outsized AI investment.  Tesla fell by an even larger -14% after its earnings report late Wednesday, which also showed a surge in capital spending and raised questions about Elon Musk’s intention to refocus Tesla on AI and robots.

Sep WTI crude oil prices (CLU26) soared by more than +6% on Thursday after the Iran-backed Houthis launched a missile and drone attack on two Saudi Arabian oil tankers in the Red Sea, expanding the oil disruptions beyond the Strait of Hormuz and threatening oil shipments in the Red Sea.  Sep Brent crude oil prices (CBU26) rose above $100 per barrel for the first time since May.  President Trump responded by saying he holds Iran responsible for the Houthi attacks and telling Axios in an interview on Thursday that he is considering a "massive attack" that would be "bigger than ever before" and is "close to making a decision on it."

The Houthis have vowed to blockade shipping linked to Saudi Arabia and warned shipowners against calling at the nation's ports.  The move threatens Saudi oil exports from Yanbu, a Red Sea hub that the Saudi's are using to ship crude since the war brought shipping through the Strait of Hormuz to a near halt.  Meanwhile, the US and Iran exchanged attacks for the 12th straight day, and the US maintained its blockade of Iranian oil shipments in the Persian Gulf. 

US weekly initial unemployment claims in the week ended July 18 fell by -22,000 to 187,000, which showed a stronger labor market than expectations for a slight increase to +210,000.  Continuing claims fell by -2,000 to 1.796 million, showing a stronger labor market than expectations for a rise to 1.809 million.

The Chicago Fed’s June National Activity Index rose to -0.02, which was weaker than the expected rise to zero from May’s revised -0.19.

The Kansas City Fed’s July manufacturing activity index fell by -2 points to 9, which was weaker than expectations for a 1-point increase to 12.

The outlook for strong Q2 earnings, which began in earnest this week, is a bullish factor for stocks.  Forecasts compiled by Bloomberg Intelligence suggest Q2 earnings may increase by +23%, close to Q1’s blowout earnings of +30%, which was more than double the +12% analysts had expected.  AI spending is expected to account for most of earnings, with AI infrastructure stocks set to contribute nearly 60% of the S&P 500's earnings-per-share growth in Q2.  So far, earnings results have been positive, with 89% of S&P 500 companies that reported Q2 earnings beating estimates, according to data compiled by Bloomberg. 

The markets are discounting a 36% chance of a +25 bp rate hike at the next FOMC meeting on July 28-29.

Overseas stock markets on Thursday closed mixed.  The Euro Stoxx 50 on Thursday closed down -1.69%. China's Shanghai Composite closed up +0.25%.  Japan's Nikkei-225 Stock Average closed up +0.46%.

Interest Rates

September 10-year T-notes (ZNU6) on Thursday fell -9.5 ticks, and the 10-year T-note yield rose +4.5 bp to 4.699%.  Sep T-notes tumbled to a 1.5-year nearest-futures low, and the 10-year T-note yield rose to a new 1.5-year high.  T-notes fell on Thursday’s sharp +6% rise in WTI crude oil prices, which threatened to worsen inflation, although the 10-year breakeven inflation expectations managed to fall -1.7 bp to 2.265%.

T-note prices were also undercut by the US unemployment claims report, which showed a stronger-than-expected labor market.  T-note prices were also undercut by lackluster demand for the Treasury’s sale of $21 billion of 10-year TIPS, which produced an auction yield that was 2 bp higher than expected.

European government bond yields rose.  The 10-year German bund yield rose +3.2 bp to 3.203%, and edged to a new 15-year high.  The 10-year UK gilt yield rose +6.8 bp to 5.102%, and posted a new 2-month high.

The ECB at its policy meeting on Thursday left its key deposit rate unchanged at 2.25%, in line with market expectations.  The ECB said it left rates unchanged, awaiting further data to determine whether additional rate hikes are necessary to address the inflation outlook.  However, ECB President Christine Lagarde said, "Risks to the inflation outlook are to the upside." The markets are discounting a 92% chance of a +25 bp ECB rate hike at its next policy meeting on September 10.

US Stock Movers

The sharp declines of -7% in Alphabet (GOOGL)and -14% in Tesla (TSLA) dragged down other mega-cap tech stocks.  The rest of the Magnificent 7 are all closed lower, with Amazon (AMZN) closing down more than -4% and Meta Platforms (META) closing down by more than -3%.

Software stocks were under pressure, with Atlassian (TEAM) falling more than -6% and Oracle (ORCL) falling more than -4%.  Salesforce (CRM), ServiceNow (NOW), and Workday (WDAY) all closed down by more than -3%.

Chipmakers closed lower nearly across the board, led by declines of more than -4% in Microchip Technology (MCHP) and more than -3% in Texas Instruments (TXN).  Globalfoundaries (GFS), Qualcomm (QCOM), Align Technology (ALGN), ON Semiconductor (ON), Intel (INTC), and AMD (AMD) all closed down by more than -2%.

Energy stocks and service providers generally traded higher on the surge in oil prices.  ExxonMobil (XOM), Diamondback Energy (FANG), and ConocoPhillips (COP) all closed up by more than +1%.

American Airlines (AAL) fell by more than -8% after the airline reduced its annual guidance and said it may show a loss in Q3 due to persistently high fuel prices.

T-Mobile (TMUS) fell by more than -10% after a disappointing earnings report.

Comcast (CMCSA) fell by more than -6% after its Q2 earnings report showed a loss in broadband subscribers, although the company noted an improved outlook for its Peacock streaming platform.

Earnings Reports(7/24/2026)

Booz Allen Hamilton Holding Co (BAH), Liberty Global Ltd (LBTYA), Verizon Communications Inc (VZ), First Hawaiian Inc (FHB), HCA Healthcare Inc (HCA), Gentex Corp (GNTX), American Express Co (AXP), Ensign Group Inc/The (ENSG), Charter Communications Inc (CHTR), SLB Ltd (SLB), NextEra Energy Inc (NEE), Lamb Weston Holdings Inc (LW).