The S&P 500 fell 1.1% Thursday as the U.S.-Iran conflict pushed oil above $100 a barrel and drove Treasury yields to fresh highs. Rising borrowing costs now threaten the debt-funded AI build-out that has held up the market, with Alphabet leading the decline after lifting its capital-spending plans.
The S&P 500 tumbled 1.1% Thursday, on pace for a back-to-back close below 7,500 — a level it first finished above in late May. The slide came as the U.S.-Iran conflict, now nearing its sixth month, pushed global oil above $100 a barrel and sent Treasury yields spiking.
Rising costs hit the AI trade
The fallout reaches the debt-funded engine behind Silicon Valley's AI build-out. Hyperscalers Microsoft, Meta and Alphabet have increasingly financed their data-center race with borrowed money and some stock issuance rather than cash on hand. Global AI-related debt issuance across corporate bonds and leverage loans was already nearing $500 billion this year, according to a recent Goldman Sachs estimate.
Alphabet led the drop after raising its capital-spending forecast to as much as $205 billion this year, with its shares down over 6%. According to MarketWatch, Anthony Saglimbene, chief market strategist at Ameriprise Financial, said the payoff in AI revenue remains unclear and that "The worry is the spending might not pay off" to the degree companies are hoping.
Yields and oil flash warnings
Higher rates can raise the cost of every dollar borrowed to build data centers, develop specialized chips or upgrade power grids. The 2-year Treasury yield rose to 4.36% Thursday, its highest intraday level since February 2025. The 10-year yield touched a new 2026 intraday high of 4.7%, according to FactSet data.
The main assumption to start 2026 was that the Fed would be cutting interest rates, potentially making borrowing cheaper. Then came the Iran war, which threatens to erode recent progress on the inflation front. The Federal Reserve, under new chair Kevin Warsh, has renewed its commitment to a 2% target.
Where the indexes landed
The Nasdaq composite was off 2% Thursday while the Dow Jones Industrial Average fell 0.9%, according to FactSet data.
Investors have bought almost every dip in the AI trade this year, with the Magnificent Seven group rebounding from the first half of 2026. Concerns flashing in the commodity and bond markets, though, now look harder for stock investors to ignore.
Source: MarketWatch
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