US equities slide as Big Tech AI spending fears and $100 oil collide
Alphabet and Tesla earnings trigger capital expenditure anxiety while Middle East conflict drives crude past key psychological threshold.
US stock markets experienced a broad sell-off on Thursday, with the Nasdaq Composite dropping 2.6% to close below 25,000 for the first time since May. The technology-heavy index led the decline, while the Dow Jones Industrial Average fell 1.1% and the S&P 500 slipped 1.4%. The retreat followed a similar downturn on Wednesday and was driven by a convergence of investor anxiety over artificial intelligence capital expenditure and surging energy costs.
The sell-off in the technology sector was precipitated by earnings reports from Alphabet and Tesla, two of the so-called Magnificent Seven. Although Alphabet reported strong quarterly fundamentals, its raised capital expenditure outlook spooked investors who are closely scrutinising the return on investment for AI infrastructure. Tesla chief executive Elon Musk further fuelled these concerns by identifying 2026 as a massive capital expenditure year for the company, highlighting investments in Optimus robots, robotaxis, and data centres.
Simultaneously, geopolitical tensions in the Middle East escalated, pushing oil prices above the $100 per barrel threshold for the first time since May. Brent crude futures rose more than 6% before pulling back, while West Texas Intermediate crude crossed the $90 mark. The rally was driven by reports of Iran-backed Houthi attacks on tankers in the Red Sea and the collapse of a temporary ceasefire between the United States and Iran, reigniting fears over global energy supply chains.
The surge in energy prices has reignited inflation concerns, impacting the bond market. The 10-year Treasury yield reached its highest level in a year and a half, reflecting a sell-off in bonds and reducing expectations for Federal Reserve interest rate cuts this year. Some market speculation has now shifted towards potential rate hikes as rising oil prices push back against earlier bets on monetary easing.
In contrast to the volatility in equities and bonds, the labour market showed unexpected strength. Initial jobless claims fell to 187,000 for the week, significantly below the expected 210,000. This figure marks the lowest level of claims since 1969, defying broader market anxieties about economic cooling. Investors now turn their attention to a raft of upcoming earnings reports, including those from Intel, T-Mobile US, and Lockheed Martin.
