US stocks experienced their worst single-day drop in nearly a month on Thursday. The S&P 500 fell 1.2%, while the Nasdaq 100 tumbled 1.9%. The tech-heavy index recorded its worst performance since the tariff turmoil in April 2025, with a combined $797 billion wiped off market value.
The sell-off rippled into Asian markets. The MSCI Asia Pacific Index dropped 0.8%, with declines seen across Japan, South Korea, and Australia. South Korea's KOSPI index widened its losses to 3%, with SK Hynix falling over 4% and Samsung Electronics down more than 3%. Japan's Nikkei 225 lost approximately 2.5%.
Nasdaq 100 futures edged up 0.1%, and Intel gained 3.5% in after-hours trading on a better-than-expected revenue forecast, offering some support to market sentiment.
Doubts Over AI 'Money-Burning' Logic
The trigger for this rout was investor skepticism about whether massive AI capital expenditure can translate into profits. Alphabet shares tumbled 7.1% after raising its capital expenditure forecast. Tesla plunged 15% despite strong EV deliveries, as its profit fell short of expectations. Earlier in April, Alphabet, Meta, Microsoft, and Amazon disclosed combined AI spending plans reaching $725 billion this year.
"It's still early, with more mega-cap cloud earnings reports due next week. We can't yet say they will see the same negative reaction as chip stocks, but this trend does amplify the 'buy the rumor, sell the news' concern," said Matt Maley, Chief Market Strategist at Miller Tabak.
Meanwhile, AMD unveiled a new series of data center products, claiming they will outperform Nvidia in a bid to capture AI computing market share. Intel released a stronger-than-expected revenue outlook, indicating that growth in data center spending is supporting its business recovery.
Oil Breaks $100, Reigniting Inflation Worries
Changes in the energy market further rattled investors. Brent crude settled above $100 a barrel for the first time since May, while WTI crude stood at $92.40 per barrel.
The sharp rise in oil prices stems from an escalation in Middle East tensions. Houthi rebels attacked two Saudi oil tankers in the Red Sea, prompting former President Trump to threaten stronger action against Iran. Concurrently, conflict involving Iran has disrupted shipping through the Strait of Hormuz. The Caspian Pipeline Consortium (CPC) export terminal on Russia's Black Sea coast has also been repeatedly struck, affecting Kazakh crude exports. Global inventories have been significantly depleted due to ongoing conflict, heightening supply tightness risks.
"The second round of this military conflict will be broader than the first, posing extreme risk not just to shipping but to energy infrastructure," Bob McNally, President of Rapidan Energy Group and a former White House official, told Bloomberg Television.
The surge in oil prices directly pushed up inflation expectations, leading to a decline in US Treasury prices and a stronger US dollar. Money markets are now fully pricing in a Federal Reserve rate hike in September.
"Escalation in the Middle East has driven up oil prices, raising concerns that inflation could reaccelerate, delaying rate cuts or even forcing the Fed to hike rates," said Sameer Samana from Wells Fargo Investment Institute. "We believe oil prices will eventually normalize, but we acknowledge things could get worse before they get better."
Multi-Asset Linkage: Bonds, Gold, and Yen All Under Pressure
The rise in oil prices and inflation expectations triggered a chain reaction across multiple asset classes.
Gold fell nearly 2% on Thursday to around $4,050 an ounce, as rising rate hike expectations diminished the appeal of the non-yielding asset. It is still trading slightly lower.
The 10-year US Treasury yield held near 4.70%. Japan's 10-year government bond yield rose 2.5 basis points to 2.795%, while Australia's 10-year yield climbed 7 basis points to 5.06%.
The yen remained weak, trading at 163.85 against the US dollar. This followed data showing Japan's core inflation gauge rose for the first time in three months, leading markets to expect another rate hike from the Bank of Japan this year.
European Central Bank President Christine Lagarde paved the way for a possible rate hike in September. The ECB held its deposit rate steady at 2.25% unanimously at its policy meeting.
On trade, reports indicated that the US plans to impose tariffs of 10% to 12.5% on imports from most major trading partners, marking a new step in efforts to rebuild tariff barriers.
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