The Nasdaq Composite bore the brunt of the downturn, plummeting 2.15% to 25137.69 as Alphabet and Tesla shares cratered. Alphabet dropped 6.9% after projecting annual capital expenditures as high as $205 billion, while Tesla fell 14% after reporting negative free cash flow for the first time in two years. Both companies highlighted the aggressive, expensive nature of the current AI buildout, leaving investors concerned about the long-term impact on bottom lines.

Energy markets reacted violently to geopolitical tensions at critical transit points. Brent crude jumped over 7% as Houthi militants targeted vessels in the Bab al-Mandeb Strait, adding to existing supply pressures in the Strait of Hormuz and the Black Sea. This inflationary surge sent the 10-year Treasury yield to 4.703% and pushed wheat futures above $7 a bushel for the first time in three years.

Defense and industrial stocks provided a rare counter-narrative to the broader market decline. Lockheed Martin gained 11% and RTX rose 7.3%, fueled by record backlogs and new Pentagon contracts. Railroad operators also saw significant gains as cargo shifted from trucking to rail, while Cleveland-Cliffs surged 16% on the back of a strong profit forecast. Conversely, consumer-facing firms struggled, with American Airlines sliding 8.4% and T-Mobile dropping 11% as rising costs and slowing growth weighed on investor sentiment.