Major U.S. stock indexes concluded Tuesday’s trading session in negative territory, with the technology sector bearing the brunt of the decline. The S&P 500 Index ($SPX) fell 0.49%, the Dow Jones Industrial Average ($DOWI) slipped 0.05%, and the Nasdaq 100 Index ($IUXX) saw a more substantial drop of 1.01%. This downturn was fueled by a combination of waning investor confidence in the immediate payoff of massive artificial intelligence investments and a sharp increase in crude oil prices.
AI Jitters Dampen Tech Outlook
Concerns surrounding the artificial intelligence sector intensified following a report by The Wall Street Journal indicating that OpenAI recently failed to meet its targets for new users and sales. This news had a ripple effect on the shares of companies closely associated with OpenAI and those heavily invested in AI infrastructure. Stocks such as Nvidia, Oracle, Advanced Micro Devices (AMD), and CoreWeave experienced notable declines as investors reassessed the near-term profitability of AI ventures.
Several prominent AI-related stocks saw significant pullbacks. ARM Holdings Plc (ARM) led the losses in the Nasdaq 100, closing down more than 7%. Other notable decliners included Applied Digital (APLD), Applied Materials (AMAT), and Sandisk (SNDK), all falling over 5%. Broadcom (AVGO), Oracle (ORCL), and KLA Corp (KLAC) dropped more than 4%, while Advanced Micro Devices (AMD), Micron Technology (MU), and ASML Holding NV (ASML) experienced declines exceeding 3%.
Surging Crude Oil Prices Fuel Inflation Fears
Simultaneously, soaring crude oil prices added to market anxieties, boosting inflation expectations and pushing bond yields higher. West Texas Intermediate (WTI) crude oil reached a two-week high on Tuesday. This surge was reportedly linked to reports that President Trump expressed dissatisfaction with Iran’s latest proposal to reopen the Strait of Hormuz and end the ongoing conflict, which included postponing nuclear negotiations. The geopolitical tensions in the Strait of Hormuz, a critical chokepoint for global energy supplies, are threatening to exacerbate the global energy crisis.
The ongoing blockade of the Strait of Hormuz, through which approximately one-fifth of the world’s oil and liquefied natural gas transits, could lead to deeper global oil and fuel shortages. Goldman Sachs estimates that crude output in the Persian Gulf has been curtailed by about 14.5 million barrels per day, representing over 50% of April’s production. The firm further projects that current disruptions could deplete global crude stockpiles by nearly 500 million barrels, potentially reaching one billion barrels by June.
The rise in oil prices directly impacted bond markets, with the 10-year Treasury note yield climbing to a three-week high of 4.38%. This upward pressure on yields reflects increasing inflation expectations, as evidenced by the 10-year breakeven inflation rate reaching a 14-month high of 2.472%.
Economic Data Offers Mixed Signals
Despite the headwinds, some U.S. economic data provided a degree of support, helping stocks bounce from their lowest levels of the day. The Conference Board’s April consumer confidence index unexpectedly rose to 92.8, a four-month high, surpassing expectations of a decline to 89.0. Additionally, the April Richmond Fed manufacturing survey improved, increasing by 3 points to a 14-month high of 3, which was better than anticipated.
However, other economic indicators painted a less optimistic picture. The February S&P composite-20 home price index showed a year-over-year increase of 0.90%, which was weaker than the expected 1.12% and marked the slowest pace of increase in over 2.5 years. This suggests a cooling housing market.
Corporate Earnings and Fed Watch
Earnings season is underway, and results thus far have been largely supportive of the stock market. As of Tuesday, 80% of the 172 S&P 500 companies that had reported first-quarter earnings beat estimates. First-quarter S&P 500 earnings are projected to increase by 12% year-over-year, according to Bloomberg Intelligence. However, excluding the technology sector, first-quarter earnings are projected to rise by only around 3%, the weakest growth in two years.
In other corporate news, Coca-Cola saw its shares rise more than 3%, providing some support to the Dow Jones Industrials, after reporting stronger-than-expected first-quarter net revenue. Conversely, Rambus (RMBS) plunged over 20% after missing earnings expectations, and Spotify Technology SA (SPOT) fell more than 12% on weaker-than-expected operating income.
The Federal Open Market Committee (FOMC) began its two-day meeting on Tuesday, with a policy announcement expected on Wednesday. Markets are largely discounting a 0% chance of an interest rate hike at this meeting, anticipating that the Fed will maintain its current monetary policy stance as it monitors oil prices and inflation developments.
Overseas markets also experienced declines, with the Euro Stoxx 50 falling to a 2.5-week low, China’s Shanghai Composite closing down, and Japan’s Nikkei Stock 225 experiencing a notable drop. The combination of AI sector concerns and rising energy costs created a challenging trading environment for global equities.
