(July 21): A renewed bout of oil volatility sent stocks lower, with concerns about an escalation in Middle East hostilities outweighing attempts to bring about a pause in the war.

Most shares in the S&P 500 retreated, though a gauge of chipmakers bounced after sinking into a bear market. In a volatile session, US crude settled near US$83. Worries that higher energy costs could boost inflation spurred bond losses. Gilts sank after new UK Prime Minister Andy Burnham unnerved investors over his approach to the country’s finances.

President Donald Trump vowed that Iran “will pay” for killing three US soldiers in recent days, even as mediators proposed a new truce. Tensions remained high as Tehran-backed Houthi militants in Yemen threatened to blockade Saudi Arabia in the Red Sea.

“The Iran situation continues to roil markets,” said veteran strategist Louis Navellier. “This is holding back the stock gains that should be expected given the strong earnings trends.”

This week brings the first results from the megacap group, and pressure is building for the companies to justify AI investments. Tesla Inc and Alphabet Inc kick off big tech’s reporting season Wednesday. Then, Microsoft Corp, Meta Platforms Inc, Apple Inc and Amazon.com Inc hit the following week.

“For stocks to rebound, we need some solid earnings from the key tech names this week, and de-escalation in Iran wouldn’t hurt,” said Tom Essaye at The Sevens Report. “Markets will want to see strong results and more signs of robust demand, but also evidence of restraint and a focus on stability.”

The recent tech pullback likely reflected a combination of profit-taking and investors reassessing whether the robust spending on components required for the AI buildout can continue, according to Brock Weimer at Edward Jones.

“AI will remain a durable investment theme, but we advise investors to complement that exposure with cyclical and value-oriented segments of the market,” he said.

Hedge funds pulled back from US tech stocks at a record pace over the past two months, according to Goldman Sachs Group Inc’s Prime Services desk led by Vincent Lin.

“The persistence and magnitude of selling since early June point to significant length reduction by tech investors, and some signs of capitulation are starting to emerge,” the desk wrote.

Uploaded by Isabelle Francis