U.S. stock indexes slipped on Thursday as oil prices surged amid renewed Middle East shipping concerns, lifting bond yields and reviving fears of higher inflation. The S&P 500 ended lower, while the Dow and Nasdaq 100 also closed down as parts of technology—especially software—came under pressure following earnings-related updates.
The move was reinforced in rates markets: the yield on the 10-year Treasury rose about 5 basis points to 4.66%, with traders pointing to crude’s inflation impulse and commentary suggesting the Fed may be more willing to tighten if inflation expectations firm.
Key takeaways
- Stocks fell: The S&P 500 closed down 0.18%, the Dow Jones Industrial Average fell 0.85%, and the Nasdaq 100 slid 0.39% as oil and yields pressured risk assets.
- Catalyst was oil and rates: Escalating Middle East tensions and uncertainty around reopening the Strait of Hormuz pushed crude higher and lifted Treasury yields.
- Technology lagged: Software and memory chip names weighed on the market after company-specific guidance and results.
- Macro releases offered partial support: Better-than-expected U.S. labor and productivity data helped offset the rate shock.
- Implication for investors: With the next Fed decision in focus, sensitivity to inflation expectations appears to be driving near-term index moves.
What drove the market lower
Market participants narrowed in on a combination of geopolitical risk in energy and its implications for inflation and interest rates. According to the report, escalating tensions in the Middle East pushed crude oil sharply higher, reflecting uncertainty over whether the Strait of Hormuz can be partially reopened and concerns about potential disruptions to oil exports.
Data also pointed to a tighter labor backdrop than investors had been pricing. Weekly initial jobless claims rose by 1,000 to 199,000, which the report characterized as stronger than expectations of 205,000. In addition, Q2 nonfarm productivity rose 1.4% versus an expected 0.6%, while Q2 unit labor costs increased 1.3% compared with expectations of 2.1%.
Oil, the Fed, and Treasury yields
Oil futures rose more than 2% on Thursday, the report said, after news flow suggested renewed constraints on shipping through the Strait of Hormuz and additional developments tied to the conflict. Reuters was not cited in the text, but the report attributed the sharp oil jump to Iran-related shipping restrictions and statements regarding action at the strait’s entrance, along with remarks about attacks in the broader region.
Bond markets reacted quickly. The 10-year Treasury yield rose about 5 basis points to 4.66%, as oil’s move fed into inflation expectations and the report cited a Financial Times piece indicating that Fed Chair Warsh could support a rate increase at the next September FOMC meeting if inflation and rate expectations shift further toward tightening.
Even so, the report noted limits to the move in yields after productivity and unit labor cost data came in in a way that was described as more dovish for Fed policy.
Earnings and sector moves shaped the tape
Corporate results delivered a mixed read across sectors. According to the report, software stocks weighed on the broader market after several companies showed weaker profitability, revenue, or forward guidance. Datadog fell more than 18% after reporting Q2 adjusted gross margin of 80%, below consensus of 80.7%. AppLovin dropped more than 20% following a miss on revenue estimates, and memory chip names declined after SanDisk forecast weaker-than-expected Q1 revenue; Western Digital fell more than 13% and Sandisk slid more than 6%.
By contrast, some individual earnings fueled upside for select stocks. The report said Motorola Solutions, APA Corp, Paycom Software, Ormat, and Parker-Hannifin rallied after reporting results that exceeded expectations.
Energy-linked shares moved higher in tandem with crude. Occidental Petroleum rose more than 4%, SLB gained more than 3%, and a range of oilfield service and integrated energy names added value as WTI moved higher.
Elsewhere, the report highlighted large single-day decliners tied to guidance or estimates across a broad set of companies, including Honeywell Aerospace, HubSpot, Zillow Group, and HubSpot’s peers, underscoring how earnings revisions are driving stock-specific dispersion.
Global markets and what to watch next
Overseas markets ended mixed. The Euro Stoxx 50 closed up to a new all-time high, China’s Shanghai Composite rose to a three-week high, and Japan’s Nikkei 225 ended lower.
Looking ahead, investors are likely to keep a close focus on two fronts highlighted by Thursday’s trading: first, whether developments around the Strait of Hormuz produce clarity on oil supply risks; and second, the path for monetary policy after the recent rise in yields. The report also points to the market’s attention on the September FOMC meeting, alongside upcoming economic and earnings updates that could further influence expectations for inflation and interest-rate direction.
