Wall Street falls as $100 oil and weak tech earnings spark inflation fears
Escalating Middle East hostilities drove Brent crude above $100 and crushed tech stocks, reviving inflation anxieties just days before the Federal Reserve's next policy decision.
US equities sold off sharply, with the Nasdaq Composite dropping 2.15% and the S&P 500 falling 1.24%. The broad declines were driven by a toxic combination of disappointing earnings from major technology companies and a sudden surge in oil prices.
Investors reacted poorly to second-quarter results from Alphabet and Tesla, the first of the "Magnificent Seven" to report this season. Tesla's stock dragged down the consumer discretionary sector after it reported negative free cash flow for the first time in over two years, while Alphabet weighed on communication services.
Concurrently, Brent crude settled above $100 a barrel for the first time since May, and U.S. futures rose above $90. The spike followed U.S. military air strikes on Iran, retaliatory fire from Tehran toward neighboring countries hosting U.S. bases, and Houthi attacks on two Saudi oil tankers in the Red Sea. U.S. President Donald Trump vowed "major military punishment" for Iran and the Houthis.
The geopolitical escalation has immediate implications for monetary policy. Rising energy costs threaten to reignite inflation just days before the Federal Reserve meets. "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, noting that low unemployment data would pressure the central bank to prioritize fighting price increases.
Inflation concerns pushed the yield on the U.S. 10-year Treasury to its highest level since early 2025. Despite the macroeconomic turbulence, traders still priced a roughly 64% probability that the Fed will keep interest rates unchanged next week, according to CME Group's FedWatch tool. Wall Street's fear gauge, the CBOE Volatility Index, hit its highest level in nearly a month.
Not all sectors suffered. The industrials sector gained strength, led by Lockheed Martin, which raised its 2026 sales and profit forecasts. Thermo Fisher Scientific also rallied after beating second-quarter estimates and lifting its annual profit guidance. Conversely, the Philadelphia semiconductor index fell ahead of Intel's post-session earnings, and Texas Instruments dropped despite an upbeat revenue forecast.
