Global stocks are facing a severe summer test as rising oil prices, swelling AI capital expenditure and renewed tariff threats hit the core supports behind the current bull market.
Brent crude rose above $100 a barrel this week, the highest level in two months, after major shipping disruption in the Middle East and the Red Sea. At the same time, Donald Trump proposed tariffs of 10% to 12.5% on about 60 economies. Those two shocks quickly lifted inflation expectations and pushed the 10-year U.S. Treasury yield up to 4.66%.
Technology stocks also came under heavy pressure. Google’s sharply higher capital spending guidance stirred doubts about returns on AI investment, helping wipe nearly 6% from the combined market value of the “Magnificent Seven” over the week. The S&P 500 fell for a second straight week and posted its biggest one-day drop of the month, while the 30-year Treasury yield moved close to its highest level since 2007.
The logic that had supported the rally — resilient earnings, manageable inflation and continued expansion in AI spending — is now showing strain. Barclays has cut its rating on risk assets to neutral, Goldman Sachs kept a neutral three-month outlook, and HSBC shifted its strategy from semiconductors to European banks. Wall Street is sending a cluster of tactical defensive signals.
$100 Oil and the Return of Inflation Fears
The starting point for this week’s turbulence was the conflict in the Middle East.
Fighting spread from the Strait of Hormuz to the Red Sea, creating three breaks in the global oil supply chain. According to maritime data company Kpler, only six ships passed through the Strait of Hormuz on Thursday, reducing traffic to one-tenth of the prewar level. Saudi Arabia’s alternative Red Sea route, which had been activated earlier to bypass Hormuz, was also disrupted after Houthi forces attacked two Saudi oil tankers. Escalation in the Russia-Ukraine war added pressure by further constraining exports from Kazakhstan.
Analysts at maritime intelligence firm Windward estimated that about 25% of global oil supply is under threat.
The transmission mechanism is straightforward: higher oil raises inflation expectations, inflation expectations reshape interest-rate pricing, and higher rates tighten financing conditions. The 10-year Treasury yield rose by about 10 basis points this week to 4.66%, the highest level since Trump 2.0 took office. Markets are now pricing in two rate hikes this year, and the probability of a hike at next week’s Federal Open Market Committee meeting is 30%.
“Oil is the most likely trigger,” Nomura cross-asset strategist Charlie McElligott said. In his view, higher crude prices are repricing “tail inflation risk,” meaning the probability of more persistent inflation, and that kind of shock reaches the rates market before it erodes corporate earnings.
JPMorgan global strategist David Lebovitz focused on duration. If oil stays elevated through the summer, he said, risk premia will need to be repriced across the board.
Cracks Show in the AI Spending Story
Oil was not the only pressure point. The AI investment narrative also started to fray this week.
Alphabet, the first hyperscale technology company to report this season, did not disappoint on headline operating performance. Cloud grew 82% year over year and search grew 17%. Even so, the company lifted its 2026 capital expenditure guidance by 8% to a range of $195 billion to $205 billion, and the stock dropped about 8% for the week.
Tesla fared worse. Its second-quarter non-GAAP earnings per share missed expectations because of weaker margins, and concern over the pace of commercialization for its AI product pipeline added to the pressure. The shares fell nearly 20% over the week.
The split in credit markets is especially notable. Goldman Sachs data show that AI-related debt issuance has reached $489 billion so far in 2026, up 50% from all of last year, with 60% coming from companies outside the hyperscale group. Credit default swap spreads for the biggest capex spenders have widened to record highs, while overall credit spreads remain near the tightest levels seen in years. The stress has not spread broadly, but it is concentrated in the AI supply chain.
The sector is pouring unprecedented sums into projects whose returns are still uncertain. Some estimates put cumulative AI capital expenditure close to $1 trillion by 2027. Higher rates are raising the hurdle those investments ultimately need to clear.
“Funding channels remain open, but investors are becoming increasingly selective,” Lebovitz said. “The biggest disconnect is the assumption that AI spending can expand without limit.”
Public backing for open-source models from Jensen Huang and Elon Musk this week may add to that pressure. Cheaper models imply lower spending needs, which raises the risk that semiconductors revert to a more cyclical pattern.
Next Week Is the Real Test
Next week brings a heavy schedule. The Federal Reserve, the Bank of England and the Bank of Japan will all hold policy meetings. Companies representing 34% of the S&P 500’s market capitalization are due to report earnings, including four members of the “Magnificent Seven”: Microsoft and Meta on Wednesday, Apple and Amazon on Thursday. Fresh signals on AI capital spending will arrive in quick succession.
Technical conditions have already deteriorated. Goldman’s trading desk said overall fund flows were 12.6% skewed to selling this week, while long-only investors showed a 21% selling bias. “We have seen almost no bids, and tech earnings so far have not provided the stabilizing force many had expected.” The S&P 500 has broken below its 50-day moving average, market makers are in negative gamma, and key commodity trading advisor trigger levels are under close watch. The Nasdaq has also slipped below its 50-day average and is testing the June 9 low.
Gold has moved back above $4,000, and the dollar posted its best weekly performance in more than a month. Safe-haven assets are pricing the same unease.
Bank of America’s head of European equity strategy, Sebastian Raedler, put the point plainly. Expectations for margins, five-year forward earnings growth and the global market-cap-to-GDP ratio are all near historical highs, while the equity risk premium is near a 20-year low. “The market is priced for a scenario where everything goes right and nothing goes wrong,” he said. He expects global stocks to have another 7% to 8% downside.
Author: Gao Zhimou, Wallstreetcn