Stock markets stabilized on Thursday as investors digested a heavy flow of corporate earnings reports, including results from four of the so-called "Magnificent Seven" companies. Market sentiment improved as oil prices erased earlier gains that had pushed them to a four-year high.
S&P 500 futures rose 0.6%, Nasdaq 100 futures gained 0.8%, and Dow Jones Industrial Average futures advanced 0.7%. Several major U.S. technology companies reported earnings after Wednesday's market close, yielding a mixed reaction. Alphabet surged more than 7% in pre-market trading following better-than-expected results. Amazon.com also rose after its earnings release. Microsoft declined as growth in its cloud computing business fell short of lofty market expectations. Meta Platforms, Inc. fell due to market concerns over its spending plans.
In Europe, the Stoxx 600 index edged higher amid volatility, while industrial and banking stocks saw significant losses. A slew of corporate earnings were also released in Europe, with Germany's industrials-heavy DAX index falling 0.9% after Volkswagen reported a drop in first-quarter revenue, leading to a sharp decline in automaker stocks.
Apple's earnings report was the most anticipated event of the day. This followed a busy Wednesday where the performance of some of the world's largest tech companies in the artificial intelligence sector began to come into focus.
Charu Chanana, Chief Investment Strategist at Saxo Markets, commented, "AI provides a structural growth story for the market, but oil prices are translating geopolitical tensions into a structural inflation risk. With positioning in some tech stocks still crowded, strong earnings alone can no longer support the market."
**Oil Prices Surge Past $126** Stock markets turned positive as the global benchmark Brent crude reversed intraday gains that had reached as high as 7.1%, pushing the price above $126 per barrel. A report from Axios stating that U.S. President Trump was scheduled to be briefed on Thursday on new plans for potential military action against Iran cast a shadow over recent hopes for a near-term peace agreement.
Analysts at ING noted, "The oil market has shifted from excessive optimism to confronting the reality of supply disruptions we are witnessing in the Persian Gulf."
Bloomberg strategist Mark Cranfield observed that the cross-asset market landscape is beginning to resemble the conditions seen in March: stocks and bonds falling simultaneously while oil prices and the U.S. dollar rise. Market trends began to deteriorate following the Axios report suggesting President Trump was considering escalating conflict in the Middle East.
Traders are grappling with a series of news items causing significant market volatility, from elevated oil prices to a divided Federal Reserve holding rates steady, and strong earnings from major tech stocks. This backdrop is testing the global equity rally, which had previously erased war-related losses and propelled U.S. stocks to new highs.
Wolf von Rotberg, Equity Strategist at Bank J. Safra Sarasin Ltd., said, "Equities are caught between escalating Middle East tensions and robust fundamental earnings data. If oil prices approach $150 per barrel, the impact on U.S. consumers could become increasingly apparent, which would also mark a turning point for the stock market. Therefore, an agreement is needed to see the market continue its upward trajectory in the coming months."
In other markets, the Japanese Yen rallied against the U.S. Dollar after Japan's Finance Minister Satsuki Katayama stated that the timing for bold foreign exchange action is approaching. U.S. Treasuries stabilized after a selloff driven by surging oil prices and a hawkish hold from the Federal Reserve.
U.S. Treasury yields remained near one-month highs. The 10-year yield hovered near 4.434%, the one-month high reached after the Fed's policy meeting on Wednesday. According to Tradeweb data, the 2-year yield rose 0.9 basis points to 3.939%, while the 10-year yield increased 1.4 basis points to 4.429%.
**Deepening Divisions at the Fed** The Federal Reserve held its policy rate steady in the 3.50%-3.75% range, but the vote revealed a surprising split, with four members dissenting. Traders have nearly abandoned bets on rate cuts this year and have begun pricing in the possibility of a rate hike in 2027.
Jerome Powell held his final press conference as Fed Chair after the Justice Department dropped a controversial criminal investigation into the Fed, clearing the path for Senate confirmation of Kevin Warsh as the next Chair. Powell stated he would remain on the Fed's board as a governor.
The latest meeting revealed a further deepening of internal divisions. Cleveland Fed President Beth Hammack, Minneapolis Fed President Neel Kashkari, and Dallas Fed President Lorie Logan "supported maintaining the current target range for the federal funds rate but did not support including an easing bias in the statement." Governor Stephen Miran dissented, voting in favor of a rate cut.
Analysts at Danske Bank noted in a report that Fed Chair Jerome Powell's decision to remain as a governor after his term as chair ended prevented President Trump from nominating a successor who favored rate cuts.
Gold prices rebounded but were still on track for a weekly decline after falling in the previous session. Soojin Kim of Mitsubishi UFJ stated, "Bargain hunting emerged after three consecutive days of declines."
**Mixed Earnings; Four Tech Giants Ramp Up Capital Expenditures** Amid ongoing growth in artificial intelligence demand and rising costs for chips and data centers, the four tech giants among the "Magnificent Seven" that reported earnings on Wednesday did not signal cuts to investment. Instead, they further raised their capital expenditure forecasts.
Data shows that capital expenditures for Microsoft, Amazon.com, Meta Platforms, Inc., and Alphabet are projected to reach $725 billion this year—primarily for AI data center equipment—exceeding pre-earnings market expectations of $670 billion.
Prior to these earnings reports, concerns arose about whether tech giants would firmly execute their previously announced massive capital expenditure plans for AI infrastructure, following reports that OpenAI failed to meet internal targets for user growth and sales. The expansion of AI-related capital spending by these tech giants has, to some extent, provided reassurance to investors.
**Stocks in Focus** Qualcomm surged over 12% in pre-market trading, releasing two positive signals. Eli Lilly rose 7% pre-market after Q1 revenue beat expectations and the company raised its full-year revenue guidance. Caterpillar gained over 5% pre-market as Q1 revenue and adjusted EPS both exceeded forecasts. Merck & Co. advanced 4% pre-market following Q1 sales that were higher than expected. Meta Platforms, Inc. fell sharply by 8% pre-market due to market worries over AI spending and legal/regulatory scrutiny. KLA declined 8% pre-market; while Q3 results beat expectations, its guidance fell short.
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