$100 oil prices, AI backlash, tariffs resumed--a "difficult summer" for stock market bulls

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Global stock markets are facing a severe stress test in this midsummer: soaring crude oil prices, rapidly expanding AI capital spending, and renewed tariff policies are simultaneously impacting the core pillars supporting the current bull market.

Affected by severe shipping disruptions in the Middle East and Red Sea regions, Brent crude oil broke through $100 per barrel this week, hitting a two-month high. At the same time, Trump proposed tariff increases of 10% to 12.5% on about 60 economies. These two factors quickly pushed market inflation expectations higher, driving the yield on 10-year US Treasury bonds to 4.66%.

The tech sector suffered a major setback this week. Google's sharp upward revision of its capital spending guidance triggered concerns about AI investment returns, leading to nearly a 6% evaporation in market value of the "Magnificent Seven" over the week. As a result, the S&P 500 index recorded a second consecutive week of losses and saw the largest single-day drop of the month; the 30-year US Treasury yield is approaching its highest level since 2007.

The bull market logic of resilient earnings, controllable inflation, and sustained AI spending expansion has begun to falter. Currently, Barclays has downgraded its risk asset rating to neutral, Goldman Sachs maintains a three-month neutral outlook, HSBC has shifted its strategy from the semiconductor sector to European banks, and Wall Street institutions are intensively issuing tactical defensive signals.

$100 Oil and the Ghost of Inflation

The turbulence in the Middle East is the origin of this week's market turmoil.

The conflict has spread from the Strait of Hormuz to the Red Sea, resulting in a triple disruption to the global oil supply chain: according to maritime-data company Kpler, only six ships passed through the Strait of Hormuz on Thursday, with traffic down to one-tenth of pre-war levels; the Red Sea alternative route previously used by Saudi Arabia to bypass Hormuz was blocked by Houthi attacks on two Saudi tankers; the escalation of the Russia-Ukraine conflict further squeezed Kazakhstan's exports.

Analysts at maritime intelligence firm Windward estimate that about 25% of global oil supply is currently under threat.

The transmission chain is tightly linked: oil prices push up inflation expectations, inflation expectations change the pricing of interest rates, and higher rates tighten financing conditions. 10-year US Treasury yields rose about 10 basis points this week to 4.66%, a new high since Trump 2.0 took office; markets have priced in two rate hikes this year, and the probability of a rate hike at next week's FOMC is 30%.

“Crude oil is the most likely trigger factor,” said Charlie McElligott, cross-asset strategist at Nomura—higher oil prices are repricing “tail risks of inflation,” meaning the likelihood of more persistent inflation; this shock will be transmitted to the rates market before it erodes corporate profits.

JPMorgan global strategist David Lebovitz is focusing on persistence: If oil remains high throughout the summer, risk premiums will need to be comprehensively re-evaluated.

The AI Arms Race Encounters a Crisis of Trust

Beyond oil prices, the AI investment narrative also showed signs of fracture this week.

As the first mega-cap technology firm to report earnings this quarter, Alphabet’s results were solid—cloud business up 82% year-on-year, search up 17%. But the company also raised its 2026 capital expenditure guidance by 8% to $195–205 billion, with its share price plunging about 8% over the week. Tesla had an even worse experience: Q2 non-GAAP earnings per share missed expectations due to shrinking margins, compounded by concerns about the pace of AI product pipeline rollout, causing its shares to plummet nearly 20% in a week.

The divergence in the credit market is particularly worth watching.

According to Goldman Sachs, $489 billion of AI-related debt has been issued since 2026 so far, up 50% from last year’s total, with 60% coming from non-mega-cap tech companies. The CDS spreads of mega-cap capital spenders have climbed to record highs—while broader credit spreads remain at their tightest levels in years. The stress has not spread widely, but is highly concentrated in the AI value chain.

The whole industry is pouring unprecedented funds into projects with uncertain returns.

Some estimates suggest total AI capital expenditures could reach nearly $1 trillion by 2027. Higher rates have raised the return thresholds that these investments ultimately must clear. “Financing channels remain open, but investors are becoming increasingly selective,” said Lebovitz. “The biggest disconnect is the assumption that ‘AI spending can expand indefinitely.’”

Jensen Huang and Elon Musk openly supported open-source models this week, possibly further shaking this logic: cheaper models mean lower spending needs, and the risk of semiconductors returning to their cyclical nature is rising.

Next Week: The Ultimate Test for Bulls

Next week, the Federal Reserve, Bank of England, and Bank of Japan will all hold policy meetings, and companies accounting for 34% of S&P 500’s market cap will report earnings, including four of the "Magnificent Seven”—Microsoft and Meta (Wednesday), Apple and Amazon (Thursday)—with the latest signals on AI capital spending to be intensively released.

Technical signals are deteriorating. Goldman Sachs’ trading division reported this week that overall fund flows skewed 12.6% to the sell side, while long-term funds leaned 21% to selling—“hardly any buy orders were seen, and tech earnings have so far failed to become the stabilizing force many hoped for.” The S&P 500 has fallen below its 50-day moving average, market makers are in negative gamma, CTA trigger levels are being closely watched; the Nasdaq also fell below its 50-day average, testing the June 9 low. Gold is back above $4,000, the dollar logged its best weekly performance in over a month—safe-haven assets are pricing the same unease.

Bank of America’s European strategy head Sebastian Raedler put it most bluntly: Margin forecasts, five-year forward earnings growth, and the global market cap/GDP ratio are all at record highs, while risk premiums are at 20-year lows. “The market is pricing in a scenario where everything goes well and there are no risks,” he said. He expects global equities have another 7% to 8% downside.

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