Renewed AI fears and a fresh spike in oil prices are hammering stocks

The bull market stumbled Thursday, with US stocks seeing a fresh sell-off amid the latest surge in oil prices and continued anxiety over the AI trade.

Oil jumped as markets digested a New York Times report that the US and Israel are planning strikes on Iran after the midterm elections. The report, which cited US officials, described the operation as “short but intensive,” renewing fears of continued conflict that could keep oil markets under pressure.

Brent crude, the international benchmark, spiked more than 3% to over $112 a barrel. West Texas Intermediate crude jumped 2%, but remained a hair below the key $100-a-barrel threshold.

Here’s where US indexes stood shortly after 12:00 p.m. ET:

Tech sentiment soured as investors sifted through earnings from Tesla and Meta. Shares of Elon Musk’s car company dropped as much as 3% despite beating Wall Street’s estimates. Meta also dropped despite upbeat earnings and strong guidance.

“Following an extraordinary run in technology stocks, markets are becoming more demanding around evidence of the payoff from high investment in AI and concerned about the sustainability of this spending amid higher interest rates,” said James McCann, senior economist at Edward Jones.

Meta beat on earnings and revenue and issued strong guidance for the coming quarter, but shares dropped as much as 6%, attesting to how central the Muse creator has become to the AI trade, where even stellar results may not be enough to please investors.

Tesla whittled its capex estimate for the year to $20 billion, down from $25 billion. The Facebook parent’s capex estimate was largely unchanged for the year, but investors sense that more “spending discipline” means the AI investment boom could slow, sparking negative consequences for “supplies across the entire chain,” top economist David Rosenberg said.

The chips sector saw the sharpest declines, with the iShares Semiconductor ETF dropping 5%. The tech-heavy Nasdaq 100 also shed more than 2%.

David Morrison, a senior market analyst at Trade Nation, said the market was exhibiting a worrying reaction to Meta’s and Tesla’s earnings, given that both firms reported solid results.

“The market reaction to these key updates and the overall effect this has had on the chip sector and other AI-adjacent stocks this morning is concerning. Not only does it show that upside momentum has waned significantly, but that intermediate support levels are creaking dangerously,” he wrote in a client note.

“Investors may be mostly passive investors nowadays, but their mood seems to follow the trend of individual stocks, plenty of which have been struggling even as the indices trade much closer to all-time highs,” Paul Hickey, the co-founder at Bespoke Investment, said of weaker investor sentiment.

CoreWeave, a neocloud company that’s come under investor scrutiny recently for its debt, dropped 4%. The stock is down 25% since October 13, even as Nvidia CEO Jensen Huang has come out to defend CoreWeave and other neoclouds, claiming that demand is “off the charts.”

Here were some of the most notable moves in the tech sector:

It’s been a volatile few weeks for traders as the midterm elections — a key event that stocks are often thought to struggle leading into — inch closer.

The bullish tone in markets has seemingly “reversed overnight,” and investors appear to be on “flight-to-quality trade,” strategists on JPMorgan’s markets intelligence desk wrote in a note.

The bank pointed to lower yields, a sign that investors are scooping up safe-haven Treasurys. The 10-year US Treasury yield dropped 11 basis points on Thursday despite the move up in oil, falling back to its lowest level in about a month.

“Underlying price actions and feedback from our trading desk also suggested the still fragile narrative around AI financing concerns and the lack of conviction / re-grossing from the recent tech reversal,” the bank said of factors contributing to the sell-off.

Treasurys are acting like more traditional safe-havens again after a long stretch of selling driven by fears of high inflation and fiscal instability. Investors have flocked back to US government debt as tech weakness causes the four-year-old bull market to falter and as more geopolitical instability looms.

Meanwhile, hyperscalers’ corporate bond spreads, a measure of how much investors want to be paid to hold the debt, have widened back to levels last seen in July, the bank added, attesting to credit jitters weighing on the AI trade.

Pressure also continued on the bond market across the Atlantic. The 10-year French OAT surged 7 basis points as political unrest continued across the nation, a sign that investors are dumping government debt securities and heading toward other areas of safety. France’s bond market has been catapulted into a historic sell-off amid the cost-of-living riots, with its 10-year bond yield breaking past 5% for the first time in 24 years this week.