Stocks Settle Lower as Middle East Tensions Rise

The S&P 500 Index ($SPX) (SPY) closed down -0.18% on Thursday, the Dow Jones Industrial Average ($DOWI) (DIA) closed down -0.85%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.39%.  September E-mini S&P futures (ESU26) fell -0.18%, and September E-mini Nasdaq futures (NQU26) fell -0.32%.

Stock indices gave up an early advance and settled lower on Thursday. Escalating tensions in the Middle East pushed crude oil prices sharply higher, fanning inflation fears and boosting bond yields.  The lack of clarity on a deal to reopen the Strait of Hormuz fueled a sharp jump in crude prices, stoking concerns the Fed may have to raise interest rates.  The 10-year T-note yield rose +5 bp to 4.66%.

Weakness in software stocks also weighed on the broader market on Thursday, led by a -18% plunge in Datadog after it reported Q2 adjusted gross margin below consensus. Technology stocks were also under pressure on Thursday, led by a -20% fall in AppLovin after it missed analysts’ revenue estimates.  Memory chipmakers also retreated on Thursday after SanDisk forecast weaker-than-expected Q1 revenue.   

Some positive corporate earnings results supported stocks on Thursday. Motorola Solutions, APA Corp, Paycom Software, Ormat, and Parker-Hannifin all rallied sharply on Thursday after reporting stronger-than-expected earnings.   

Stocks also found support on Thursday’s better-than-expected US economic news, including weekly jobless claims, Q2 nonfarm productivity, and Q2 labor costs.

US weekly initial unemployment claims rose by +1,000 to 199,000, showing a stronger labor market than expectations of 205,000.

US Q2 nonfarm productivity rose +1.4%, stronger than expectations of +0.6%.  Q2 unit labor costs rose +1.3%, less than expectations of +2.1%.

A report on Thursday in the Financial Times was bearish for stocks and bonds after it said Fed Chair Warsh is willing to raise interest rates at the September FOMC meeting if inflation firms and market expectations shift further towards tightening in the coming months.

Sep WTI crude oil prices (CLU26) rallied more than +2% on Thursday today after Iran's semi-official Fars news agency reported that vessels belonging to the US, Israel, or any other nation that has "caused damage" to Iran would be prohibited from the Strait of Hormuz under the proposed deal with Oman to reopen the waterway, which would restrict some oil exports from several Gulf States.  Also, Yemen's Houthi rebels said they targeted a Saudi oil tanker with a ballistic missile in the Gulf of Aden.  Crude prices added to their gains Thursday afternoon when Iran said it struck “hostile targets” at the entrance of the Strait of Hormuz.

The markets are waiting for news of an Iran-Oman agreement to partially reopen the Strait of Hormuz.  A joint statement from the two countries is under review, and the route would remain active for two to four months, though the agreement does not mean a full reopening, according to Iranian officials.  Iran said that a normalization of the strait will depend on the US lifting its blockade on Iranian ports.

The outlook for strong Q2 earnings 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 86% of the 430 S&P 500 companies that have reported Q2 earnings beating estimates, according to Bloomberg data. 

The markets are discounting a 58% chance of a +25 bp rate hike at the next FOMC meeting on September 15-16.

Overseas stock markets settled mixed on Thursday.  The Euro Stoxx 50 rose to a new all-time high and closed up +0.39%.  China's Shanghai Composite climbed to a 3-week high and closed up +0.57%.  Japan's Nikkei-225 Stock Average closed down -0.93%.

Interest Rates

September 10-year T-notes (ZNU6) closed down -12.5 ticks on Thursday.  The 10-year T-note yield rose +5.3 bp to 4.666%.  T-note prices retreated on Thursday after a +2% increase in WTI crude oil raised inflation expectations.  Also, Thursday’s smaller-than-expected increase in weekly jobless claims signals strength in the US labor market that is hawkish for Fed policy.  T-notes added to their losses after a report from the Financial Times said that Fed Chair Warsh is willing to raise interest rates at next month’s FOMC meeting if inflation firms and inflation expectations increase.

Losses in T-notes were limited on Thursday after Q2 nonfarm productivity rose more than expected and Q2 unit labor costs rose less than expected, dovish factors for Fed policy.

European government bond yields moved higher on Thursday.  The 10-year German bund yield rose +2.9 bp to 3.140%.  The 10-year UK gilt yield rose +4.7 bp to 4.938%.

Eurozone June retail sales unexpectedly fell -0.3% m/m, weaker than expectations of a +0.1% m/m increase

German Jun factory orders rose +3.1% m/m, stronger than expectations of +0.5% m/m.

Markets are discounting an 87% chance of a +25 bp ECB rate hike at its next policy meeting on September 10.

US Stock Movers

Datadog (DDOG) closed down more than -18% to lead software stocks lower on Thursday after reporting Q2 adjusted gross margin of 80%, below the consensus of 80.7%.  Also, Salesforce (CRM) closed down more than -3%, and Atlassian Corp (TEAM) closed down more than -2%.  In addition, Intuit (INTU), International Business Machines (IBM), and Palantir Technologies (PLTR) closed down more than -1%. 

Airline stocks and cruise line operators fell on Thursday after crude oil prices rose more than +2%.  Norwegian Cruise Line Holdings (NCLH) closed down more than -4%, and American Airlines Group (AAL) and Southwest Airlines (LUV) closed down more than -3%.  Also, United Airlines Holdings (UAL), Alaska Air Group (ALK), Carnival (CCL), and Royal Caribbean Cruises (RCL) closed down more than -2%, and Delta Air Lines (DAL) closed down more than -1%.

Memory chipmakers slid on Thursday on disappointing earnings from Sandisk and Western Digital. Western Digital (WDC) closed down more than -13%, and Sandisk (SNDK) closed down more than -6% after forecasting Q1 revenue of $10.30 billion to $10.80 billion, weaker than the consensus of $11.16 billion.  Also, Micron Technology (MU) closed down more than -1%. 

Energy stocks and service providers rose on Thursday after WTI crude oil climbed by more than +2%.  Occidental Petroleum (OXY) closed up more than +4%, and SLB Ltd (SLB) closed more than +3%.  Also, Baker Hughes (BKR), Devon Energy (DVN), and Halliburton (HAL) closed up more than +2%, and Diamondback Energy (FANG), ExxonMobil Holdings (XOM), Phillips 66 (PSX), Chevron (CVX), and ConocoPhillips (COP) closed up more than +1%.

Honeywell Aerospace (HONA) closed down more than -23% to lead losers in the S&P 500 and Nasdaq 100 after cutting its full-year organic growth estimate to 4% to 5% from a previous estimate of 7% to 9%.

AppLovin (APP) closed down more than -19% after reporting Q2 revenue growth of $1.92 billion, below the consensus of $1.94 billion.

HubSpot (HUBS) closed down more than -19% after forecasting Q3 revenue of $924 million to $925 million, well below the consensus of $942.5 million. 

Celsius Holdings (CELH) closed down more than -18% after reporting Q2 revenue of $817.9 million, well below the consensus of $872.6 million.

Zillow Group (ZG) closed down more than -8% after forecasting Q3 revenue of $745 million to $760 million, below the consensus of $773.6 million. 

Host Hotels & Resorts (HST) closed down more than -6% after raising its full-year capital expenditure estimate to $567 million to $647 million from a previous estimate of $525 million to $625 million, above the consensus of $576.8 million.

Paycom Software (PAYC) closed up more than +23% after raising its full-year revenue estimate to $2.20 billion to $2.21 billion from a previous estimate of $2.28 billion to $2.20 billion, above the consensus of $2.19 billion. 

Unity Software (U) closed up more than +15% after reporting Q2 revenue of $546.5 million, stronger than the consensus of $515 million. 

Ormat Technologies (ORA) closed up more than +9% after raising its full-year revenue forecast to $1.15 billion to $1.20 billion from a previous forecast of $1.11 billion to $1.16 billion. 

Motorola Solutions (MSI) closed up more than +8% to lead gainers in the S&P 500 after reporting Q2 net sales of $3.13 billion, above the consensus of $3.00 billion. 

Parker-Hannifin (PH) closed up more than +7% after reporting Q4 net sales of $5.76 billion, stronger than the consensus of $5.58 billion. 

Albemarle (ALB) closed up more than +5% after reporting Q2 adjusted EPS of $3.75, well above the consensus of $3.22.

Earnings Reports (8/7/2026)

Ascendis Pharma A/S (ASND), Freedom Holding Corp/NV (FRHC), Mobility Global Inc (MBGL), Oklo Inc (OKLO), PPL Corp (PPL), Take-Two Interactive Software (TTWO), Vistra Corp (VST).