S&P 500 sinks 1.2% as oil tops $100, Big Tech AI spending spooks markets

The S&P 500 fell 1.2% to 7,408.30 on Thursday as oil prices settled above $100 a barrel for the first time in two months and investors punished Big Tech for escalating artificial intelligence spending.

"Oil prices rising at this clip pose a meaningful macro and market risk," said Matt Miskin, co-chief investment strategist at Manulife John Hancock Investments. He added that low unemployment data would pressure the Federal Reserve to focus on fighting inflation.

The Nasdaq Composite sank 2.2% to 25,137.69, its steepest decline in three months, while the Dow Jones Industrial Average lost 1% to 51,711.65. Only four of the S&P 500's 11 sectors advanced. Industrials led gainers, up 1.8%, boosted by defense stocks Lockheed Martin and RTX, which rallied 10.5% and 7.3% respectively after raising their 2026 sales forecasts. The Cboe Volatility Index jumped 12.4% to 18.70, its highest level in six weeks.

The dual shock — inflationary pressure from surging oil and valuation concerns over AI infrastructure spending — threatens to upend the rotation into technology stocks that has powered the S&P 500's gains this year. The Federal Reserve's next policy meeting begins July 29, with traders now pricing a lower probability of rate cuts as Brent crude pushes toward the $100 threshold.

Oil Breaches $100 as Middle East Conflict Widens

Brent crude settled at $100.13 a barrel, its first close above $100 since May, after Iran-backed Houthi militants said they struck two Saudi oil tankers heading toward the Bab al-Mandeb Strait. The U.S. military carried out a 12th consecutive night of strikes on Iran at President Donald Trump's direction, while Secretary of State Marco Rubio said Iran was "not serious" about peace talks. WTI crude rose above $92 a barrel.

The oil surge reverberated across global markets. Germany's 10-year bund yield climbed above 3.2% for the first time since the euro zone debt crisis in 2011, while the U.S. 10-year Treasury yield held at 4.704%. The dollar index edged lower to 101.245.

Big Tech's $889 Billion Reality Check

Alphabet sank 7.1% after the Google parent disclosed plans to raise artificial intelligence capital expenditure by an additional $15 billion this year, fueling concerns that hyperscaler spending on AI infrastructure is outpacing returns. Tesla tumbled 14.5% after second-quarter results disappointed, making it the worst performer in the S&P 500. Together, the selloff in mega-cap technology stocks erased approximately $889 billion in market capitalization.

The losses contrasted with strength in Asian markets, where South Korea's KOSPI surged more than 4% on AI optimism, led by SK Hynix and Samsung Electronics. Tokyo's Nikkei and Hong Kong's Hang Seng also edged higher.

The S&P 500's technology sector fell 2.3%, while communication services dropped 3.1%. Energy was one of the few bright spots, gaining 0.8% as oil prices lifted exploration and production stocks.

This article is for informational purposes only and does not constitute investment advice.