S&P 500 slips 0.1%, Nasdaq drops 0.6% ahead of Big Tech earnings

US stocks closed mostly lower Wednesday as caution ahead of earnings from Alphabet and Tesla and rising oil prices on Middle East tensions outweighed a two-day rebound.

The S&P 500 fell 0.1% to 7,499 and the Nasdaq Composite dropped 0.6% to 25,691 as investors pared positions before earnings from Alphabet and Tesla after the closing bell. The Dow Jones Industrial Average slipped 6 points to 52,219, little changed on the session.

"The Momo guys ran out of stock to sell, so the pressure was off," said Kenny Polcari, market strategist at Slatestone Wealth, referring to Tuesday's rebound. "Ten straight days of US strikes and continued attacks on military targets have kept a geopolitical premium firmly embedded in oil prices, and that will become more of an issue next month and the months after."

Only four of 11 S&P 500 sectors finished in the red, with Information Technology, Communication Services, Consumer Discretionary and Financials leading the declines. Energy was the top gainer, rising nearly 1%, as Brent crude settled 3.1% higher at $91.63 a barrel. Super Micro Computer surged about 20% after reporting stronger-than-expected preliminary gross margins and a record order backlog, while AT&T gained 4.3% on better-than-forecast quarterly earnings. On the downside, GE Vernova fell 6.4% after widening losses in its wind business overshadowed a revenue beat, and Pegasystems dropped about 15% on a second-quarter earnings miss.

The stakes are high for Alphabet and Tesla, whose results will test whether the AI-driven rally has room to run after weeks of selling in semiconductor stocks. Options pricing implies a swing of as much as 6% for Alphabet and 7% for Tesla by week's end, according to recent options market data. A miss could deepen the rotation out of tech, while a beat may validate the spending that has pushed combined capital expenditure for the Magnificent Seven to record levels.

Trading was uneven throughout the session as investors locked in profits from Tuesday's rebound, when the S&P 500 gained 0.9% and the Nasdaq climbed 1.3%. The VanEck Semiconductor ETF had surged 4.5% on Tuesday, but chip names gave back some of those gains Wednesday, with profit-taking in names like AppLovin, SanDisk and Lam Research. Semiconductor stocks remain about 25% below their early June peak after hedge funds aggressively unwound crowded AI trades in recent weeks.

Oil's Ascent Complicates the Inflation Outlook

The sustained rise in crude prices has revived concerns that inflation could prove more persistent, complicating the Federal Reserve's policy outlook. Brent crude at $91.63 is up 25% from pre-conflict levels and more than 30% from its July 2 low, fueled by 10 consecutive nights of US strikes on Iranian targets. The Strait of Hormuz has seen traffic collapse to below 45% of pre-war levels, and a Houthi maritime embargo on Saudi Arabia threatens an additional 2.5 million barrels a day via the Red Sea. Gold rose 1.7% to $4,079 an ounce, while copper climbed 3% to $6.56 a pound on signs of tightening supply in China.

Alphabet is scheduled to report after the close, with Bank of America projecting revenue of $102.1 billion and earnings of $8.38 per share — well above the consensus estimate of $2.90, largely due to an estimated $80 billion boost from the revaluation of its Anthropic stake. Capital spending remains the key variable, with Alphabet already guiding to $180 billion to $190 billion in full-year capex. Tesla's report will be scrutinized for updates on autonomous driving, robotics and vehicle demand, with the EV maker having set aside a $25 billion capital budget for 2026 to fund AI infrastructure and Optimus development.

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