Dow plunges 500 points as oil surge, tech selloff grip Wall Street

The Dow Jones Industrial Average tumbled about 500 points Thursday, while the S&P 500 and Nasdaq Composite also closed sharply lower as a surge in oil prices, escalating Middle East tensions, and disappointing reactions to tech earnings weighed on investor sentiment.

"The combination of an energy supply shock and a reassessment of AI spending timelines is creating a volatility regime we haven't seen since early 2026," said Michael Wilson, chief equity strategist at Morgan Stanley.

Technology and consumer discretionary stocks led the decline, with the S&P 500 information technology sector falling 2.8% and communication services dropping 2.1%. Energy was the sole relative outperformer, declining just 0.3%, as crude prices surged. The Cboe Volatility Index jumped 4.2 points to 22.8, its highest level in three months, as declining issues outnumbered advancing ones by more than 3-to-1 on the New York Stock Exchange.

The selloff marks a sharp reversal from the previous session, when the S&P 500 hit a three-month high. Traders pointed to three primary factors: Brent crude approaching $98 per barrel as Middle East tensions escalated, disappointing market reactions to earnings from Alphabet and Tesla, and growing concerns that massive AI infrastructure spending may pressure margins across the technology sector.

Oil Surge Reshapes Macro Outlook

Brent crude rose nearly 4% to approach $98 per barrel, its highest since the Strait of Hormuz closure earlier this year pushed prices above $120. The latest leg higher followed Iran-backed Houthi militant attacks on two Saudi oil tankers in the Red Sea, renewing fears of supply disruptions. The 10-year US Treasury yield rose 6 basis points to 4.32% as traders priced in the inflation implications of sustained energy costs, while the dollar index edged higher.

The oil shock is rippling through corporate earnings. easyJet reported a 70% decline in third-quarter profit, citing weaker travel demand and higher fuel costs. Heathrow Airport also reported lower first-half core earnings, attributing the decline to higher tax expenses and uncertainty surrounding travel demand.

Tech Earnings Disappoint as AI Spending Questions Mount

Alphabet shares fell 4.5% after the company reported higher-than-expected infrastructure spending plans, triggering a broader retreat in mega-cap tech shares. Tesla dropped 3.8% as investors weighed margin pressure against delivery targets. The selloff extended to European markets, where the FTSE 100 slipped 0.14% to 10,702.23 and the STOXX 600 fell 0.6% as investors awaited the European Central Bank's interest rate decision.

The AI infrastructure buildout remains a key debate. BlackRock Energy and Resources Income Trust noted in its half-year report that the four largest hyperscalers — Alphabet, Amazon, Meta, and Microsoft — have raised their 2026 AI capital expenditure forecast to approximately $800 billion, roughly 10 times the annual capital spending of the top 20 global mining companies. While this spending supports demand for energy and data center infrastructure, it also raises questions about near-term returns on investment.

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