U.S. stock markets experienced a sharp sell-off on Thursday, with the Dow Jones Industrial Average dropping 458 points, or 0.9%, amid a surge in oil prices driven by escalating tensions in the Middle East. Brent crude futures soared above $100 per barrel for the first time since May, fueled by attacks on Saudi Arabian tankers in the Red Sea and threats from President Donald Trump to strike Iranian infrastructure in response to any aggression. The broader S&P 500 and Nasdaq Composite also fell by 1.2% and 2.2%, respectively, pressured by significant declines in tech giants Alphabet and Tesla following disappointing earnings and increased capital spending.

Alphabet's stock plummeted 6% as the company raised its 2026 capital expenditure forecast to $195 billion-$205 billion, highlighting strong but costly artificial intelligence investments. Tesla shares plunged 13%, marking its worst day since June 2025, after reporting a large earnings miss and a 142% year-over-year increase in capital expenditures to $5.79 billion for the quarter. Both companies posted negative free cash flow, stoking investor concerns over balancing aggressive AI and growth spending with profitability. Other hyperscalers, including Meta, Microsoft, and Amazon, also closed lower amid worries about the AI spending ramp-up.

Rising oil prices and geopolitical risks extended their impact beyond equities, pushing U.S. Treasury yields higher, with the 10-year note yield surpassing 4.7%, the highest since January 2025, and the 2-year yield rising above 4.35%. Market sentiment shifted toward a greater probability of Federal Reserve interest rate hikes later this year, with fed funds futures indicating an 82% chance of a September increase. However, some strategists warn the ongoing Middle East conflict could slow global growth through higher energy costs and trade disruptions, potentially undermining expectations for further tightening.

Amid the market turbulence, European stocks also slipped as geopolitical uncertainty persisted, with energy stocks rising on higher oil prices while most other sectors declined. In corporate news, Lockheed Martin and Comcast outperformed after reporting better-than-expected earnings, while Uber announced job cuts reflecting a push to reduce costs amid rapid AI budget increases. Investors remain wary, with bullish sentiment among individual investors plunging to its lowest level since September, underscoring heightened caution against the backdrop of mounting inflationary pressures and geopolitical tensions.