US stocks fell sharply on Thursday as escalating tensions in the Middle East sent oil prices higher, while disappointing reactions to earnings from Alphabet and Tesla added pressure to the broader market.
The Dow Jones Industrial Average lost 604 points, or 1.2%, while the S&P 500 declined 1.2%.
The Nasdaq Composite underperformed with a 1.8% drop as technology stocks came under pressure.
Oil surge fuels inflation concerns
Crude oil prices jumped after Yemen’s Iran-backed Houthi group claimed responsibility for attacks on two Saudi Arabian oil tankers in the Red Sea, raising concerns that the conflict in the Middle East could widen.
Investor anxiety also increased after President Donald Trump warned of military action against Iranian infrastructure.
“From this point forward, any time the Islamic Republic of Iran shoots at a ship in the Strait of Hormuz, whether it be by Missile, Rocket, Drone, or any other device or weapon, the United States will bomb and destroy ONE BRIDGE OR POWER PLANT, including those located next to, or in, the Capital City of Tehran,” Trump wrote in a post on Truth Social.
Brent crude futures for July delivery rose 6% to trade above $99 a barrel after briefly touching $100 during the session.
US West Texas Intermediate crude futures climbed 5% to more than $91 a barrel.
Both benchmarks traded at their highest levels since before the United States and Iran reached an agreement last month to end their conflict.
“Inflation has remained top of the agenda for markets this morning, with Brent crude moving up … as the Middle East escalation continues,” Deutsche Bank strategist Jim Reid wrote in a note on Thursday.
The jump in oil prices also pushed Treasury yields higher, with the benchmark 10-year Treasury yield reaching its highest level since January 2025.
Alphabet and Tesla drag technology stocks
Technology shares also weighed on the broader market following quarterly corporate updates from two of the sector’s largest companies.
Alphabet shares fell about 5% after the Google parent increased its forecast for 2026 capital expenditures to as much as $205 billion, citing continued demand for artificial intelligence infrastructure.
The higher spending outlook came as investors have become increasingly cautious about the scale of AI-related investment by major cloud computing companies.
Tesla shares dropped more than 9% after the electric vehicle manufacturer reported second-quarter earnings that missed Wall Street expectations.
The company’s operating expenses also increased at a faster pace than revenue during the quarter.
Jobless claims signal resilient labor market
Economic data released Thursday pointed to continued strength in the US labor market.
Initial jobless claims fell to 187,000 in the week ended July 18 from 209,000 a week earlier, according to the Labor Department.
The reading marked the lowest level for weekly jobless claims since 1969, suggesting continued strength in the labor market even as rising oil prices add to inflation concerns.
The stronger-than-expected employment data reinforced expectations that the US economy continues to expand, while also raising concerns that persistent inflationary pressures could complicate the interest rate outlook as energy prices climb.
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