Stocks Slip Before the Open on AI Spending Worries and Higher Bond Yields

September S&P 500 E-Mini futures (ESU26) are down -0.42%, and September Nasdaq 100 E-Mini futures (NQU26) are down -0.51% this morning as earnings from Alphabet and Tesla heightened concerns over the scale of AI spending, while rising oil prices drove bond yields higher.

Alphabet (GOOGL) fell nearly -4% in pre-market trading after the Google parent raised its full-year capital spending guidance to as much as $205 billion, overshadowing its stronger-than-expected Q2 results. Notably, Alphabet's quarterly cash flow turned negative for the first time since the company went public more than two decades ago, underscoring the magnitude of its capital spending. Also, Tesla (TSLA) slumped more than -5% in pre-market trading after the EV maker reported weaker-than-expected Q2 adjusted EPS, with a surge in spending leading to its first cash burn in two years.

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Adding to the negative sentiment, the price of WTI crude surged over +4% on Thursday after American forces struck Iran for a 12th straight day, while Houthi militants said they had attacked two Saudi oil tankers in the Red Sea. The U.K. Maritime Trade Operations confirmed one of the attacks. Meanwhile, The Wall Street Journal reported that the U.S. is building up forces in the Middle East to expand President Trump's military options.

Treasuries fell across the curve on Thursday as higher oil prices fueled inflation concerns. The 10-year T-note yield rose three basis points to 4.70%.

Investors are now awaiting U.S. jobless claims data and a new round of corporate earnings reports, with a particular focus on results from chipmaker Intel.

In yesterday's trading session, Wall Street's three main equity benchmarks ended in the red. Most members of the Magnificent Seven slid, with Meta Platforms (META) dropping over -2% and Microsoft (MSFT) falling more than -1%. Also, software stocks sank, with Workday (WDAY) and Palantir Technologies (PLTR) sliding over -6%. In addition, GE Vernova (GEV) slumped over -8% and was the top percentage loser on the S&P 500 after the maker of power generation equipment reported weaker-than-expected Q2 adjusted EBITDA. On the bullish side, Super Micro Computer (SMCI) jumped over +19% and was the top percentage gainer on the S&P 500 after the AI server maker doubled its previous FQ4 gross margin guidance.

Second-quarter corporate earnings season continues in full flow, and investors look forward to fresh reports from notable companies today, including Intel (INTC), RTX Corporation (RTX), T-Mobile US (TMUS), and Lockheed Martin (LMT). Intel's results will draw particular attention, giving investors further insight into how AI spending is reshaping the tech industry. According to Bloomberg Intelligence, companies in the S&P 500 are expected to post an average +26% jump in quarterly earnings for Q2 compared to the previous year.

On the economic data front, investors will focus on U.S. Initial Jobless Claims data, set to be released in a couple of hours. Economists expect this figure to be 211K, compared to last week's number of 208K.

U.S. rate futures have priced in a 66.3% probability of no rate change and a 33.7% chance of a 25 basis point rate hike at next week's FOMC meeting.

In the bond market, the yield on the benchmark 10-year U.S. Treasury note is at 4.70%, up +0.62%.

The Euro Stoxx 50 Index is down -0.82% this morning as investors digest a flurry of corporate earnings reports and brace for the European Central Bank's monetary policy decision. Technology stocks slid on Thursday, dragged lower by a more than -12% slump in STMicroelectronics (STMPA.FP) after the chipmaker provided soft Q3 revenue guidance. Also, food and beverage stocks tumbled, with Nestle (NESN.Z.IX) slumping more than -7% after reporting that real internal growth turned negative in North America in the second quarter. In addition, sentiment was dampened by the continued rise in oil prices. A survey released on Thursday showed that France's manufacturing sentiment edged higher in July, supported by improved assessments of past production and global order books. Investors are now looking ahead to the interest rate decision from the European Central Bank. The ECB is widely expected to keep the deposit rate unchanged at 2.25% later today after raising it by 25 basis points at the June meeting. However, the central bank will likely leave the door wide open to another rate hike in September, as a renewed surge in energy prices threatens to add further upward pressure on inflation. Many economists expect ECB officials to deliver further tightening when they meet in September. In other corporate news, Dassault Aviation (AM.FP) jumped over +7% after the French aerospace group reported better-than-expected first-half results.

The French July Business Survey stood at 101, in line with expectations.

Asian stock markets today settled in the green. China's Shanghai Composite Index (SHCOMP) closed up +0.25%, and Japan's Nikkei 225 Stock Index (NIK) closed up +0.46%.

China's Shanghai Composite Index closed higher today as investors continued to rotate out of tech names and into defensive sectors. New energy, rare earth, and defense stocks outperformed on Thursday. Limiting gains, semiconductor and other AI-related stocks sank due to profit-taking. The drop came even after filings showed that some prominent Chinese funds heavily invested in consumer stocks were shifting toward AI stocks. The E Fund Blue Chip Selected Mixed Fund, one of China's largest actively managed portfolios, reduced its exposure to liquor makers in the second quarter while increasing positions in AI-related companies such as SMIC and Suzhou Dongshan Precision Manufacturing. The Invesco Great Wall Dingyi Mixed Fund likewise shifted into soaring AI-related stocks during the quarter, including Zhongji Innolight and Piotech, replacing previous top holdings such as Moutai and Guangdong Haid Group. In other news, China's commerce ministry said on Thursday that China and the U.S. have remained in close communication over the details of their Board of Trade and are exploring arrangements for a reciprocal tariff-reduction framework. Investors are looking ahead to a late-July meeting of the Politburo, China's top decision-making body, where policymakers typically review the economy and fine-tune policy to support growth.

Japan's Nikkei 225 Stock Index closed higher today, supported by strength in chipmakers. Chip and other AI-related stocks advanced on Thursday amid expectations that they will continue to benefit from global AI spending. As the AI buildout continues, Google parent Alphabet raised its full-year capital expenditure guidance by $15 billion, bringing the new range to $195 billion to $205 billion. "Sentiment improved after Alphabet raised its outlook for investments, and U.S. chip stocks inched up," said Shuutarou Yasuda at Tokai Tokyo Intelligence Laboratory. Strength in financial and energy stocks also supported the benchmark index. However, the Nikkei's gains were limited as Japanese government bond yields climbed on Thursday, with the two-year yield reaching a 31-year high, amid growing bets that the Bank of Japan would accelerate the pace of interest rate hikes. Bloomberg reported on Wednesday that BOJ officials are open to raising interest rates more aggressively than economists generally expect, with the yen's continued weakness adding to upside risks to inflation. The yen hovered near a 40-year low against the dollar in Asian trading on Thursday, with Finance Minister Satsuki Katayama reiterating that the government stands ready to take decisive action in the foreign exchange market as needed. Investor attention is now squarely on Japan's National Core CPI for June and flash PMIs for July, scheduled for release on Friday. The Nikkei Volatility Index, which takes into account the implied volatility of Nikkei 225 options, closed up +6.84% to 34.82.