U.S. stocks tumbled on Thursday: S&P 500 drops 1.2%, Tech Seven lose nearly $800 billion, Middle East conflict pushes oil prices higher

Market Overview

According to Golden Finance APP, US stocks plunged sharply on Thursday, with the S&P 500 index dropping 1.2% and the Nasdaq 100 index falling 1.9%. The mega-cap tech sector, represented by the "Magnificent Seven" tech stocks, suffered its worst single-day performance since the April 2025 tariff storm, with a combined market value evaporating by about $800 billion.

The ongoing escalation of the US-Iran conflict has driven up oil prices, with Brent crude surpassing $100 per barrel. Inflation concerns have resurfaced, coupled with questions about the return on AI investments during tech earnings season, leading to a sell-off in risk assets.

Impact of Middle East Conflict

The US military has launched attacks against Iran for the 12th consecutive night. Trump stated he is seriously considering the resumption of large-scale combat operations, which may surpass the previous “Epic Fury” operation, and threatened military retaliation against Iran and the Houthi forces. Houthi forces attacked a Saudi oil tanker in the Red Sea, further increasing supply disruption risks.

Brent crude broke through $100 intraday, while WTI crude rose 5.5% to $91.59 per barrel. The president of Rapidan Energy Group warned that a second round of conflict could be broader in scope and pose massive risks to shipping and energy infrastructure.

Fed Rate Hike Expectations

The CME FedWatch Tool shows that the probability of a 25 basis point hike at next week's meeting has risen to about 36%, and the probability of a rate hike in September has surged significantly. Soaring oil prices have heightened inflation concerns, and the market expects the Fed may delay cuts or even raise interest rates.

The yield on the US 2-year Treasury rose to a 17-month high, the 10-year yield climbed to 4.70%, and the 30-year real yield approached its highest level since 2008. The dollar strengthened, while gold and Bitcoin retreated simultaneously.

Tech Giants Under Earnings Pressure

Google's second-quarter net profit beat expectations, but capital expenditures continued to increase and free cash flow turned negative, causing the share price to plunge 6.9%. Despite strong deliveries, Tesla's profits declined and free cash flow turned negative, resulting in a 14.5% stock crash.

Alphabet halted share buybacks, and investors are concerned whether the massive AI spending (a combined $725 billion by Meta, Microsoft, and Amazon) can realize actual returns. The Magnificent Seven Tech Index sank 3.86%, dragging down the Nasdaq.

Data Comparative Analysis

Editor’s Summary

The sharp correction in US stocks on Thursday was a combined result of the Middle East conflict driving up energy prices and fueling inflation concerns, along with questions over AI spending during tech giant earnings season. Defensive sectors showed resilience, while high-valuation tech stocks came under significant pressure. Next week's Fed meeting and further tech earnings releases will be key variables for market trends.

Frequently Asked Questions

Q: What are the main reasons for the sharp decline in US stocks on Thursday?

A: The escalation of conflict in the Middle East pushed oil prices above $100, intensifying inflation concerns and raising expectations of Fed rate hikes. At the same time, tech giants' earnings revealed massive AI capital expenditures causing negative free cash flow, prompting investors to question the rate of return.

Q: Why did the Magnificent Seven tech stocks get hit hard?

A: Companies such as Google and Tesla saw substantial increases in capital expenditures and turned negative on cash flow. There are market concerns over whether the $725 billion AI investment can quickly generate returns, in addition to “sell the news” sentiment, leading to an evaporation of nearly $800 billion in sector market value.

Q: What is the impact of oil prices breaking $100 on Fed policy?

A: High oil prices have raised inflation expectations. The probability of a rate hike next week rose to 36%, and the probability of a hike in September increased significantly. Bond yields climbed, further suppressing valuations of risk assets.

Q: Why did defensive sectors outperform against the trend?

A: Defense stocks such as Lockheed Martin and Raytheon Technologies benefited from increased defense spending amid geopolitical tensions, and healthcare stocks like Thermo Fisher rose due to upward earnings revisions, displaying strong resilience.

Q: What risks and opportunities should investors focus on now?

A: In the short term, pay attention to the language of the upcoming Fed meeting and developments in the Middle East. Tech stocks should be wary of AI spending pressure, while defensive and energy-related sectors may have short-term opportunities. It is recommended to control position sizes and use professional tools to track real-time dynamics.