S&P 500 falls second straight week as Fed, oil test markets

The S&P 500 and Nasdaq fell for a second straight week, their first since March, as the Fed, Middle East and tech spending hit.

"There's an overall unsettled sense that there are too many uncertainties and too many problems, so let's all hunker down," said Ed Yardeni, president of Yardeni Research.

Technology stocks led the decline after Alphabet Inc. slumped 7.8% last week, its worst drop since the tariff turmoil in April. The company raised its 2026 capital expenditure forecast by $15 billion to a range of $195 billion to $205 billion, fueling concerns that massive AI investments are not generating commensurate returns. The Magnificent Seven group suffered their biggest one-day market value decline since April. The 10-year Treasury yield climbed to about 4.7%, its highest level since January 2025, as traders priced a roughly 36% chance the Fed will raise rates at this week's meeting, according to CME Group data.

The outcome of this week's Fed decision and earnings from Microsoft Corp. and Meta Platforms Inc. could tip the market either way, analysts said. A hawkish hold or a rate increase would compound pressure from rising bond yields, while any escalation in the Middle East — after Houthi militants fired on Saudi tankers in the Red Sea last week and President Trump threatened military punishment against Iran — could push oil prices higher and further complicate the inflation outlook.

Tech Spending Fatigue Sets In

The scale of AI-related capital expenditure has become a central source of investor anxiety. Hyperscalers have already borrowed more than $200 billion in bonds and loans this year and announced another $115 billion in equity raises, according to CreditSights. Alphabet's surprise $80 billion equity issuance in June and Nvidia Corp. and Amazon.com Inc.'s $25 billion bond sales have weighed on debt prices in recent weeks.

Alphabet's revised CapEx forecast implies spending of $195 billion to $205 billion in 2026, up from a prior range that already represented a record for the company. The stock has lost 15% since the equity raise was announced on June 1.

Geopolitical Risk Returns to the Fore

Oil prices jumped last week after Houthi militants attacked Saudi tankers in the Red Sea, with President Trump threatening a "major military punishment" against Iran if the attacks continued. The escalation reversed some of the relief from June, when the US and Iran made progress on peace talks and Brent crude fell back toward pre-conflict levels.

Brent crude fell 6.8% to $85.49 a barrel on Monday as reports emerged that the US and Iran were discussing a possible interim ceasefire deal, but the underlying risk of supply disruption remains elevated. The Strait of Hormuz — through which about a fifth of global petroleum demand transits — has been largely closed to maritime traffic since the conflict escalated five months ago.

For portfolio managers, the convergence of Fed tightening risk, rising real yields and geopolitical uncertainty creates a fragile setup. The S&P 500's proximity to all-time highs leaves limited room for error. A hawkish Fed decision or a further escalation in the Middle East could trigger a broader rotation out of equities, particularly in rate-sensitive tech names that have driven this year's gains.

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