Author: Gao Zhimou, Wall Street News
Global stock markets are facing a severe stress test this midsummer. Soaring crude oil prices, ballooning AI capital expenditures, and the resumption of tariff policies are simultaneously battering the core pillars supporting the current bull market.
Affected by severe shipping disruptions in the Middle East and the Red Sea, Brent crude oil broke through $100 per barrel this week, hitting a two-month high. Concurrently, Trump proposed tariffs of 10% to 12.5% on about 60 economies. The combination of these two factors has rapidly pushed up market inflation expectations, prompting the 10-year US Treasury yield to climb to 4.66%.
The technology sector suffered heavy losses this week. Google's significant upward revision of its capital expenditure guidance sparked concerns about the return on AI investments, dragging down the "Magnificent Seven," whose combined market value evaporated by nearly 6% for the week. As a result, the S&P 500 posted its second consecutive weekly decline and recorded its largest single-day drop of the month, while the 30-year US Treasury yield approached its highest level since 2007.
The bull market logic of resilient profits, manageable inflation, and ongoing AI spending expansion is showing signs of faltering. Currently, Barclays has downgraded its risk asset rating to neutral, Goldman Sachs maintains a neutral three-month outlook, and HSBC has shifted its strategy from the semiconductor sector to European banks. Wall Street institutions are intensively releasing tactical defensive signals.
Hundred-Dollar Oil and the Inflation Specter
Conflict in the Middle East is the origin of this week's market turbulence.
The fighting has spread from the Strait of Hormuz to the Red Sea, causing a triple fracture in the global oil supply chain: According to maritime data company Kpler, only six ships passed through the Strait of Hormuz on Thursday, with traffic dropping to one-tenth of pre-war levels; the alternative Red Sea route previously activated by Saudi Arabia to bypass the Strait of Hormuz was hindered after two Saudi oil tankers were attacked by the Houthis; and the escalation of the Russia-Ukraine conflict further constrains exports from Kazakhstan.
Maritime intelligence agency Windward analysts estimate that about 25% of global oil supply is now under threat.
The transmission chain is interlinked: oil prices push up inflation expectations, inflation expectations alter interest rate pricing, and higher interest rates tighten financing conditions. The 10-year US Treasury yield rose about 10 basis points this week to 4.66%, a new high since the beginning of Trump 2.0 administration; the market has priced in two rate hikes this year, with the probability of an FOMC hike next week at 30%.
"Crude oil is the most likely trigger factor," judged Nomura cross-asset strategist Charlie McElligott — higher oil prices are repricing the "inflation tail risk," meaning the probability of more persistent inflation emerging. This shock transmits to the interest rate market before it erodes corporate profits.
J.P. Morgan global strategist David Lebovitz focuses on persistence: if crude oil remains high throughout the summer, risk premiums will need to be comprehensively reassessed.
The AI Arms Race Encounters a Crack in Trust
Beyond oil prices, cracks also appeared this week in the AI investment narrative.
As the first hyperscale tech company to report this quarter, Alphabet's earnings themselves were not problematic — cloud business grew 82% year-over-year, search grew 17%. However, the company simultaneously raised its 2026 capital expenditure guidance by 8% to $195-205 billion, causing its stock to plummet about 8% for the week. Tesla's experience was even more brutal: Q2 Non-GAAP EPS missed expectations due to margin compression, compounded by concerns about the pace of AI product pipeline delivery, leading to a near-20% weekly plunge.
The divergence in credit markets is particularly noteworthy.
According to Goldman Sachs data, $489 billion in AI-related debt has been issued so far in 2026, a 50% increase from the full year of last year, with 60% coming from non-hyperscale tech companies. The CDS spreads of hyperscale capital spenders have risen to historic highs — while overall credit spreads remain at their tightest levels in years. Pressure has not spread widely, but it is highly concentrated on the AI industrial chain.
The entire industry is pouring unprecedented funds into projects with yet-unknown returns.
Some estimates show that by 2027, cumulative AI capital expenditures will approach $1 trillion. Higher interest rates raise the return hurdle these investments must ultimately clear. "Financing channels remain open, but investors are becoming increasingly selective," Lebovitz said, "The biggest disconnect lies in the assumption that 'AI spending can expand infinitely.'"
Public support for open-source models from Jensen Huang and Elon Musk this week could further shake this logic: cheaper models imply lower expenditure requirements, and the risk of semiconductors reverting to cyclicality is rising.
Next Week: The Ultimate Test for the Bulls
Next week, the Federal Reserve, the Bank of England, and the Bank of Japan will hold policy meetings successively. Companies representing 34% of the S&P 500's market capitalization are set to release earnings, including four of the "Magnificent Seven" — Microsoft and Meta (Wednesday), Apple and Amazon (Thursday). The latest signals on AI capital expenditures will be released intensively.
Technical conditions are already deteriorating. Goldman Sachs' trading desk reported this week that overall flows were skewed 12.6% to selling, with long-term funds' selling tilt reaching 21% — "barely seeing any buy-side interest, tech earnings have so far failed to be the stabilizing force many expected." The S&P 500 has broken below its 50-day moving average, market makers are in negative gamma territory, and CTA trigger levels are being closely watched; the Nasdaq has also broken below its 50-day moving average and is testing the June 9th low. Gold has regained the $4,000 level, and the US dollar recorded its best weekly performance in over a month — safe-haven assets are pricing the same unease.
The judgment from Bank of America's European strategist Sebastian Raedler is the most direct: margin expectations, five-year forward earnings growth rates, and the global market capitalization/GDP ratio are all at historical highs, while risk premiums are at 20-year lows. "The market is pricing a scenario where everything goes right and there are no risks," he said. He expects global equity markets to have further downside of 7% to 8%.
