S&P 500 falls 0.6% for a second week as yields and oil pressure

The S&P 500 posted back-to-back weekly declines for the first time since March as a surge in bond yields, escalating Middle East hostilities, and growing anxiety over Big Tech's AI spending converged to rattle investors.

The S&P 500 fell for a second straight week, declining 0.6%, as the 10-year Treasury yield surged to its highest level since January 2025.

"There's an overall unsettled sense that there are too many uncertainties and too many problems, so let's all hunker down," said Ed Yardeni, president of Yardeni Research.

The Nasdaq Composite dropped 2.1% for the week, while the Dow Jones Industrial Average slipped 0.4%. The selloff was broad, with the PHLX Semiconductor Index falling 3% Friday alone as Micron Technology and Sandisk each dropped more than 6%. The iShares Semiconductor ETF declined about 4.5% for the week. Real estate was the lone bright spot, with the S&P 500 Real Estate Sector gaining 2.4% Friday, led by Digital Realty Trust's 13% surge after the data center REIT raised its full-year outlook.

The convergence of threats — rising rates, a widening Middle East conflict, and AI spending fatigue — has left the market unusually exposed to this week's Federal Reserve decision, with traders pricing a 36% probability of a rate hike, up from 13% a week ago. A surprise move could tip the S&P 500 below key support levels and extend what has already been the worst stretch for stocks since the tariff turmoil in April.

Bond Yields Breach 4.7% as Iran Conflict Widens

The 10-year Treasury yield touched nearly 4.72% Thursday, its highest intraday level since January 2025, before settling around 4.68% Friday. The move came as Brent crude futures briefly crossed $100 a barrel for the first time since May after Houthi militants attacked Saudi oil tankers in the Red Sea, widening the conflict across two critical energy corridors. President Trump threatened "major military punishment" against Iran if the attacks continued. Brent settled at $96.78 Friday, down 3.9% on the day after a Reuters report that Pakistan — with China's encouragement — was pushing for new U.S.-Iran peace talks, but the benchmark still gained about 9.9% for the week. West Texas Intermediate rose 8.3% over the five sessions.

The bond selloff revived inflation fears that many investors thought were behind them. The spread between the Producer Price Index and Consumer Price Index — a gauge of corporate pricing power — has narrowed in recent months, which JPMorgan analysts said could signal that the strong profit growth booked in the first half of the year is fizzling out. "Earnings upgrades are plentiful, but the trend in revisions suggests the fuel may be running low," analysts led by Khuram Chaudry wrote in a note.

AI Spending Fatigue Hits Mega-Cap Tech

The Magnificent Seven lost almost $900 billion in market value on Thursday, their worst single-day drop since last April's tariff turmoil, after Alphabet raised its 2026 capital expenditure forecast by $15 billion to a range of $195 billion to $205 billion. Alphabet shares fell 7.8% for the week and are down 15% since the company announced on June 1 it would issue at least $80 billion of equity. Tesla plunged nearly 15% Thursday after a profit miss, hitting its lowest level in nearly a year.

The spending numbers have rattled even the most bullish tech investors. Big AI spenders have already borrowed more than $200 billion this year in bonds and loans and announced another $115 billion in equity raises, according to CreditSights. Surprise $25 billion bond sales from Nvidia and Amazon in recent weeks triggered sharp declines in hyperscaler debt prices, with investors worried about how much more issuance could come.

Intel shares sank 8% Friday, reversing premarket gains, even after the company posted earnings that blew past estimates — adjusted EPS of 42 cents on revenue of $16.1 billion, well above the 22 cents and $14.43 billion analysts had expected. The reversal showed how difficult it has become for even strong results to overcome the broader headwinds.

All eyes are on the Federal Reserve's rate decision this week, one of the least predictable in years. The CME Group's FedWatch tool showed a 36% likelihood of a rate hike at the July meeting, up from about 13% a week ago, and an 80% chance of at least a quarter-point increase by September. Microsoft and Meta Platforms are also set to report earnings on the same day as the Fed decision, creating a potential flashpoint for both rates and tech sentiment.

"If we sustain a break of 4.7%, I think 4.8% is the next move, and if we break that, it's 5%," said Gennadiy Goldberg, head of U.S. rates strategy at TD Securities.

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