Four forces drove a tough week for stocks

Stock markets faced a difficult week as investors contended with escalating geopolitical tensions in the Middle East, significant technology earnings reports, and developments in the healthcare sector. The S&P 500 index declined by 0.6%, and the tech-heavy Nasdaq composite fell by 2.1%, marking the second consecutive week of losses for both indices.

Oil prices surged for a third consecutive week, primarily driven by uncertainty surrounding Iran. U.S. benchmark West Texas Intermediate crude oil prices rose over 8%, and international Brent crude jumped nearly 10%. Geopolitical factors, including threats and attacks on oil tankers in the Red Sea, pushed Brent crude above $100 a barrel. This price movement reignited inflation concerns, leading to the highest yields on 10-year Treasury bonds since January 2025 and increasing market expectations for a potential interest rate hike by the Federal Reserve.

Artificial intelligence (AI) remained a dominant theme during the tech earnings season. Investors demonstrated a reduced tolerance for massive spending without a clear path to returns. Alphabet, Google's parent company, reported better-than-expected earnings, but its stock fell 7% as investors focused on the company's planned significant increase in capital expenditures. With free cash flow turning negative, skepticism is growing regarding the ability of hyperscale companies to sustain substantial AI infrastructure investments without demonstrating greater financial returns.

Intel reported its strongest quarterly revenue growth since 2011, boosted by a 59% increase in its data center business. However, the company's stock fell nearly 8% as investors were disappointed by a lack of major new customer contracts. GE Vernova missed earnings expectations, though it reported a strong 88% increase in orders, signaling future growth. The company's stock experienced a partial recovery but ended the week lower.

Overall, the week was characterized by a confluence of geopolitical risks, inflationary pressures, and heightened investor scrutiny of technology companies' profitability. Attention will likely turn to upcoming reports from other major tech firms and the Federal Reserve's interest rate decisions.