Stocks tumble as AI spending and oil prices hit market
U.S. stocks tumbled Thursday as surging oil prices and fresh jitters over Big Tech AI spending rocked the market. The S&P 500 fell 1.2%, the Nasdaq sank 2.2%, and Brent crude settled above $100 a barrel after Red Sea tanker attacks raised supply fears.
Key Takeaways
- The S&P 500 fell 1.2% and the Nasdaq 2.2% in Wall Street’s worst loss in a month, putting the index on track for its first back-to-back weekly decline since March.
- Brent crude jumped 7% to settle at $100.69, briefly touching $102, after attacks on two Saudi oil tankers in the Red Sea.
- Alphabet dropped 7.1% as investors focused on rising AI capital spending; Tesla tumbled 14.5% after a weaker-than-expected profit report.
- Odds of a Federal Reserve rate hike next week rose to about 36% from nearly 12% a week earlier, according to CME Group data cited by AP.
Why did the market fall so sharply on Thursday?
Rising energy costs and Big Tech nerves hit risk appetite at once. According to AP News, the S&P 500 slid 90.66 points to 7,408.30, the Dow Jones Industrial Average lost 506.93 points, or 1%, to 51,711.65, and the Nasdaq composite sank 553.21 points to 25,137.69.
Higher oil prices raise costs for businesses and leave consumers with less to spend. That pressure showed up in airlines: American Airlines fell 8.4% and Southwest Airlines lost 6.2%, even though both posted stronger spring profits than analysts expected.
Abroad, Europe sold off after the oil jump, with France’s CAC 40 down 1.6%. Asian markets were stronger earlier, and South Korea’s Kospi jumped 4.4%.
How are oil prices and geopolitics weighing on stocks?
Brent, the international crude benchmark, settled at $100.69 after gaining 7%. It touched $102 during the session, the highest for the most actively traded contract since May. The spark was attacks on two Saudi oil tankers in the Red Sea, a route that moves Middle East crude to global buyers alongside the Strait of Hormuz.
President Donald Trump threatened “major military punishment” against Iran-backed Houthi rebels in Yemen if ship attacks continue. Only weeks earlier, Brent had slipped below $72 on hopes that a wind-down in the Iran conflict would reopen the Strait of Hormuz more fully.
Gasoline averaged $4.09 a gallon nationwide, AAA said, up from $3.93 a month ago but still below May highs near $4.56. The 10-year Treasury yield rose to 4.69% from 4.67% late Wednesday, and from 3.97% before the war with Iran began, helping push long-term U.S. mortgage rates to their highest levels in nearly a year.
Why is AI spending spooking the market now?
Tesla was among the heaviest weights on indexes after its stock plunged 14.5% on a softer quarterly profit than Wall Street forecast. Alphabet, one of the few companies larger by market value, fell 7.1% even after reporting stronger profit and revenue than expected.
Investors zeroed in on Alphabet’s AI buildout. Capital spending last quarter nearly doubled to almost $45 billion from a year earlier, and the company raised its full-year CapEx forecast. CEO Sundar Pichai said AI helped cloud revenue growth accelerate to 82% last quarter, yet doubts persist about whether those outlays will translate into lasting productivity and profits.
Those AI payoff worries have been shaking the sector in recent weeks and amplifying swings across the broader Future Tech & AI Wonders story. Higher oil also risks reigniting inflation just as it had cooled more than economists expected, which could push the Fed toward its first rate increase since 2023. The European Central Bank held rates steady on Thursday.