On the eve of tech giants’ earnings reports: US stocks enter "wait-and-see mode," with both oil prices and AI facing dual uncertainties

According to Zhitong Finance APP, as global investors hold their breath awaiting tech giant earnings, the US stock market is currently facing a double whammy of geopolitical risks and an AI valuation reset. Seeking Alpha analyst Damir Tokic points out that the current market is dominated by two themes—an inflation shock driven by oil prices and artificial intelligence (AI) trading. Tech stocks remain in a cautious "wait-and-see mode" ahead of key earnings releases.

"Currently, the technology sector is in a holding pattern, while other sectors are experiencing selloffs," Tokic noted. "Under the dual pressures of rising oil prices and looming tech earnings, the downside risk facing the S&P 500 cannot be ignored."

Oil Prices Break $90, Inflation Fears Resurge

The rapidly escalating Middle East situation has become the biggest variable in the market this week. The US military launched strikes against Iran for the tenth consecutive night, while Iran retaliated by targeting multiple US bases. Shipping through the Strait of Hormuz has been noticeably affected—data shows only a few vessels passed through the channel last Sunday. Iran has announced yet another closure of the Strait of Hormuz, with the US simultaneously reinstating naval blockades on Iran.

Supply risks have pushed international oil prices sharply higher. On July 17, WTI futures settled at $82.5 per barrel, while Brent crude futures closed at $88.1 per barrel, up 18.7% and 20.8% respectively since the end of June. By July 20, Brent crude even briefly surpassed $91 per barrel.

The sustained surge in oil prices has reignited market concerns over inflation and rate hikes. AMP’s Head of Investment Strategy, Shane Oliver, warned that if the Strait of Hormuz remains closed and the conflict escalates further, "oil prices might need to rise to around $150 per barrel to slash demand enough to match falling supply."

AI Trade Faces “Life-or-Death Test”: Alphabet Earnings are Key Indicator

Beyond the oil shock, AI trading is facing a pivotal test. Alphabet (GOOGL.US), Google’s parent company, is set to release its second-quarter earnings after the close on Wednesday Eastern Time.

Alphabet is broadly seen as a winner in the AI race. Its Q1 revenue exceeded $100 billion for a third successive quarter, up 22% year-on-year to $109.9 billion, while net profit soared 81% year-on-year to a record $62.6 billion. Google Cloud was the most outstanding segment, with revenue up 63% year-on-year to $20 billion, making it the fastest-growing among major cloud service providers.

However, the market’s focus has shifted to AI capital expenditures. Alphabet’s Q1 capex jumped 107% year-on-year to $35.7 billion, with 2026 fiscal year guidance raised to $180–190 billion. Kevin Mahn, CIO of Hennion & Walsh Asset Management, warned that any signs from Alphabet of cutting its AI investment budget could trigger a chain reaction across the entire AI supply chain.

Tokic points out that any sign of stalled AI capital expenditures could accelerate what he describes as an "AI bubble burst"—an expectation already priced into semiconductor stocks.

In fact, chip stocks have already seen sharp corrections. The Philadelphia Semiconductor Index fell around 10% last week, the largest weekly drop in over a year, and has retreated more than 20% from its June all-time high, entering official bear market territory. Turning Point Market Research data shows the proportion of semiconductor stocks with short-term “double trend” buy signals has plummeted from 91% a month ago to 24%, the steepest decline since 2010.

The synchronized declines in global AI and semiconductor stocks are creating a resonance effect. The Nikkei Semiconductor Index has dropped 30% from its peak; South Korea’s KOSPI index has fallen 25% since its June 22 high, with more than 1.2 million retail accounts hitting margin call lines due to leveraged ETF selloffs.

High Inflation: A “Policy Choice” Rather Than Economic Inevitability

Moody's Analytics Chief Economist Mark Zandi has sounded warnings from a policy perspective. He points out that persistently high inflation—which remains around 3.5%, well above the Federal Reserve’s 2% target—is largely the result of policy decisions.

Although US June CPI has fallen from a high of 4.2% year-on-year to 3.5%, with core CPI down to 2.6%, renewed tensions in the Middle East have driven up energy prices again, leaving the inflation outlook full of uncertainty. Zandi previously warned that if inflation expectations keep rising, the Federal Reserve may be forced to hike rates further, even at the risk of triggering a widespread recession.

Futures market data shows traders are now betting the Fed will raise rates by a total of about 29 basis points by year-end, with a roughly 60% chance of a rate hike in September. Meanwhile, the yield on the US 30-year Treasury has moved back above the key 5% psychological level, a threshold that often attracts capital flows away from equities and into fixed-income assets.