Oil surges 5% as Iran escalation sends Nasdaq, S&P 500 lower

The S&P 500 and Nasdaq declined on July 29 as a 5% spike in crude oil from renewed Iran hostilities compounded pre-FOMC uncertainty and deepened a selloff in semiconductor stocks.

"We remain exceedingly skeptical that we are on the brink of a major diplomatic breakthrough that will resolve the nuclear standoff that started the war five months ago or enable the normalization of maritime traffic," said Helima Croft, head of commodity strategy at RBC Capital Markets, in a note.

Brent crude surged 7.2% to $90.12 a barrel, while West Texas Intermediate advanced 6.6% to $84.46, after Iran's Islamic Revolutionary Guard Corps launched ballistic missiles at US forces in Jordan, according to US Central Command, which said all missiles were intercepted. The attack shattered a brief pause in fighting that had sent oil prices lower earlier this week. Semiconductor stocks led the decline, with AI-related names under pressure ahead of earnings from Microsoft, Meta Platforms, Apple and Amazon.com. The selloff extended to South Korea's KOSPI, which tumbled 12% — bringing its monthly decline to 35% — as the global chip rout deepened.

The Federal Reserve's two-day policy meeting concluding July 29 adds another layer of uncertainty. While the central bank is widely expected to hold rates at 3.50% to 3.75%, traders have priced in a 35.8% probability of a quarter-point hike, up from near zero two weeks ago, as the oil-driven inflation spike complicates the outlook. The 10-year Treasury yield held near 4.64%, while the US dollar index slipped to 101.27.

Iran Strike Reshapes Oil Market Calculus

The US and Saudi Arabia carried out joint precision strikes in eastern Iraq targeting Iran-backed militia weapons and logistics sites, CENTCOM said, responding to more than 30 drone attacks over the previous 72 hours. Iran rejected Oman's proposal for shared 50-50 control of the Strait of Hormuz, demanding more control, as the waterway critical to global oil shipments remains disrupted. President Donald Trump told Fox News that Iran "is going to get a beating" after the attack. Energy stocks rallied as crude prices spiked, while airlines and travel names slumped on higher fuel cost expectations.

Chip Stocks Slide as AI Earnings Loom

The Philadelphia Semiconductor Index declined as investors grew wary of the massive capital spending Big Tech companies are committing to AI infrastructure. Alphabet shares were hammered last week after the company raised its full-year capital spending guidance, and its peers face similar scrutiny. Lam Research, Arm Holdings, KLA Corp. and Qualcomm are among chip names scheduled to report quarterly results this week. Second-quarter earnings for S&P 500 companies are expected to show an average 26% jump in profit from a year earlier, according to Bloomberg Intelligence. Bitcoin traded near $63,620, with the largest cryptocurrency supported by the weaker dollar but pressured by the broader risk-off tone.

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