Traffic through the Strait of Hormuz has fallen to one-tenth of pre-war levels, CDS spreads of mega-cap tech firms have surged to record highs, and the yield on 10-year U.S. Treasuries has risen to 4.66%—all three pillars of the bull market are under simultaneous pressure.
Global equity markets are undergoing a severe stress test this summer, as surging crude oil prices, rapidly expanding AI-related capital expenditures, and the reinstatement of tariff policies simultaneously undermine the core pillars supporting the current bull market.
Brent crude surpassed $100 per barrel this week, hitting a two-month high, driven by severe disruptions to shipping in the Middle East and the Red Sea. Meanwhile, Trump proposed imposing tariffs of 10% to 12.5% on approximately 60 economies. The combination of these two factors swiftly heightened market inflation expectations, pushing the 10-year U.S. Treasury yield up to 4.66%.
The technology sector suffered significant losses this week, as Google’s substantial upward revision to its capital expenditure guidance sparked investor concerns over AI investment returns, dragging down the combined market capitalization of the 'Magnificent Seven' by nearly 6% for the week. As a result, the S&P 500 posted its second consecutive weekly decline and recorded its steepest single-day drop this month, while the 30-year U.S. Treasury yield approached its highest level since 2007.
The bull market narrative—built on resilient earnings, contained inflation, and sustained AI spending—has begun to falter. Barclays has already downgraded risk assets to neutral, Goldman Sachs maintains a three-month neutral outlook, and HSBC has shifted its strategy away from semiconductors toward European banks, as Wall Street institutions increasingly signal tactical defensive positioning.
$100 Oil and the Ghost of Inflation
Middle East conflict was the origin of this week’s market turbulence.
Fighting has spread from the Strait of Hormuz to the Red Sea, causing a triple disruption to global oil supply chains: according to maritime data firm Kpler, only six vessels passed through the Strait of Hormuz on Thursday, reducing traffic to one-tenth of pre-conflict levels; Saudi Arabia’s alternative Red Sea route—established to bypass Hormuz—was obstructed after Houthi forces attacked two Saudi tankers; and escalating conflict between Russia and Ukraine has further constrained Kazakhstan’s exports.
Maritime intelligence firm Windward estimates that roughly 25% of global oil supply is currently under threat.
The transmission chain is tightly interlinked: higher oil prices fuel inflation expectations, which reshape interest rate pricing, and elevated rates tighten financial conditions. The 10-year U.S. Treasury yield rose by approximately 10 basis points this week to 4.66%, marking a new high since the onset of Trump 2.0; markets have now priced in two rate hikes this year, with a 30% probability of a hike at next week’s FOMC meeting.
“Crude oil is the most likely trigger,” said Charlie McElligott, cross-asset strategist at Nomura—higher oil prices are repricing “inflation tail risk,” or the likelihood of more persistent inflation, and this shock transmits first to interest rate markets before eroding corporate earnings.
JPMorgan global strategist David Lebovitz, meanwhile, focuses on sustainability: if crude oil prices remain elevated throughout the summer, risk premiums will need to be comprehensively reassessed.
The AI arms race encounters a trust rift
Beyond oil prices, the investment narrative around AI also showed cracks this week.
Alphabet, the first hyperscale tech company to report earnings this season, delivered solid results—its cloud business grew 82% year-over-year, and search revenue rose 17%. However, the company simultaneously raised its 2026 capital expenditure guidance by 8% to $195–$205 billion, causing its stock to plunge nearly 8% that week. Tesla fared even worse: its second-quarter Non-GAAP EPS missed expectations due to declining margins, compounded by concerns over the pace of AI product pipeline execution, leading to a single-week drop of almost 20%.
Credit market divergence warrants particular attention.
According to Goldman Sachs, $489 billion in AI-related debt has been issued year-to-date through 2026, a 50% increase compared to all of last year, with 60% originating from non-hyperscale tech companies. Credit default swap (CDS) spreads for hyperscale capital spenders have reached record highs—even as overall credit spreads remain at their tightest levels in years. Stress has not spread broadly but is highly concentrated within the AI supply chain.
The entire industry is pouring unprecedented capital into projects whose returns remain uncertain.
Some estimates suggest cumulative AI-related capital expenditures could approach $1 trillion by 2027. Higher interest rates have raised the return hurdle these investments must ultimately clear. “Financing remains readily available, but investors are becoming increasingly selective,” Lebovitz said. “The biggest disconnect lies in the assumption that ‘AI spending can expand infinitely.’”
Jensen Huang and Elon Musk’s public endorsement of open-source models this week could further undermine this logic: cheaper models imply lower spending requirements, and the risk of semiconductors reverting to cyclicality is rising.
Next week: The ultimate test for bulls
Next week, the Federal Reserve, the Bank of England, and the Bank of Japan will successively hold policy meetings, while companies representing 34% of the S&P 500’s market capitalization will release earnings reports—including four of the 'Magnificent Seven': Microsoft and Meta (Wednesday), and Apple and Amazon (Thursday)—delivering a flurry of new signals on AI-related capital expenditures.
Technical indicators have already deteriorated. Goldman Sachs’ trading desk reported this week that overall fund flows showed net selling of 12.6%, with long-term investors exhibiting a 21% tilt toward selling—'We’ve seen almost no buying interest; tech earnings so far have failed to act as the stabilizing force many had hoped for.' The S&P 500 has broken below its 50-day moving average, market makers are in a negative gamma position, and CTA trigger levels are being closely watched. Similarly, the Nasdaq has also fallen below its 50-day moving average and is testing the June 9 low. Gold has reclaimed the $4,000 level, and the U.S. dollar posted its best weekly performance in over a month—safe-haven assets are pricing in the same undercurrent of unease.
Sebastian Raedler, European equity strategist at Bank of America, offered the most blunt assessment: profit margin expectations, five-year forward earnings growth rates, and the global market capitalization-to-GDP ratio are all at historic highs, while risk premiums sit at a 20-year low. 'The market is pricing in a scenario where everything goes smoothly and there’s no risk,' he said. He expects global equities still have 7% to 8% further downside.
Edited by Jeffy