The S&P 500 closed nearly flat on Friday, as escalating Iran conflict fears and a sharp sell-off in chip stocks offset robust Q2 earnings growth. The broad market index inched up just 0.05% to settle at 7,411.98, while the Dow Jones Industrial Average gained 235.60 points, or 0.46%, to close at 51,947.25, buoyed by a 3.5% jump in Apple shares.
The Nasdaq Composite dropped 0.64% to end at 24,975.82. Investors navigated conflicting crosscurrents throughout the session: early reports of potential peace negotiations involving China and Pakistan cooled oil prices, but subsequent news that President Donald Trump is considering a “massive attack” on Iran renewed market anxiety heading into the weekend.
Chip Stocks Drag Down Tech Sector
Semiconductor shares bore the brunt of Friday’s selling pressure. Intel shares fell nearly 8%, reversing course from earlier gains despite the chipmaker exceeding Wall Street’s second-quarter expectations. Other major chip stocks slid alongside it, with Broadcom dropping 2.7% and Advanced Micro Devices declining 3.3%. Micron Technology declined 7%, and the VanEck Semiconductor ETF (SMH) pulled back 3%.
Bill Northey, investment director at U.S. Bank Asset Management Group, suggested the volatility is driven by rapid capital shifts. “I think you’re just seeing a lot of outsized flows move in and out of that space on a day-to-day, but as we step back and look at where the powerful earnings growth is, where it exists in today’s environment and what’s driving ’26 and ’27 estimates, these are the primary beneficiaries,” Northey said. He added that investors must accept that “sentiment flows” will continue to disrupt the semiconductor space.
Iran Conflict and Oil Prices Pressure Fed Outlook
Geopolitical risk dominated market sentiment. Stocks initially moved higher when Reuters reported that Pakistan, pushed by China, was considering initiating peace negotiations between the U.S. and Iran. However, momentum stalled after The New York Times reported that Trump was meeting with top advisors to decide whether to escalate U.S. attacks on Iran.
Earlier this week, Trump told Axios he was contemplating strikes larger than anything seen in the war so far, stating, “I am considering a massive attack. Bigger than ever before. I am close to making a decision. We are all set for it.” U.S. Central Command had just completed its 13th consecutive night of strikes on Iranian targets.
The shifting headlines impacted energy markets. Brent crude futures eased from recent highs above $100 per barrel to settle at $96.78, dropping nearly 4%. U.S. West Texas Intermediate futures fell 3% to settle at $89.31 a barrel. Northey noted that the Middle East situation threatens hydrocarbon flows and the global economy’s ability to absorb those shocks.
With the Federal Reserve’s policy meeting approaching next week, Thomas Urano of Sage Advisory warned that supply-driven price shocks complicate the central bank’s inflation fight. “Until energy flows through the region become more predictable, geopolitical headlines will continue to influence inflation expectations, bond yields, and Federal Reserve policy decisions,” Urano said.
Strong Q2 Earnings and High-Profile Short Bets
Despite the macroeconomic uncertainty, corporate profitability remains a bright spot. With 27% of S&P 500 companies having reported, 86% have beaten earnings-per-share estimates and 80% have exceeded revenue expectations, according to FactSet. The blended Q2 earnings growth rate now stands at 37.9% year-over-year, up from the 23.2% expected at the end of June. If maintained, this would mark the fastest pace of earnings growth since the third quarter of 2021.
However, not all investors are bullish on the tech trade. Michael Burry disclosed in a Substack post Friday that he is doubling down on bearish bets against technology stocks, adding to short positions in Nvidia and the VanEck Semiconductor ETF. Burry also stated he has not covered his short position on Tesla, which plunged 15% on Thursday following disappointing quarterly earnings and fell another 3% on Friday.
“I have not covered my Tesla short. It gets smaller all on its own,” Burry wrote, referencing the stock’s decline to around $308. He originally shorted the electric vehicle maker at $416.22 in late June. Burry argued that current AI infrastructure demand is largely driven by off-balance-sheet financing in a circular arrangement rather than genuine end-customer demand.
What Happens Next
Investors will closely monitor the Federal Reserve’s upcoming policy meeting for guidance on how the central bank plans to navigate inflation pressures stemming from Middle East energy disruptions. Any escalation in the Iran conflict or shifts in oil prices will likely dictate short-term market direction. On the corporate front, the remainder of the Q2 earnings season will test the resilience of the market, particularly whether strong profit growth can continue to shield equities from geopolitical volatility and sentiment-driven swings in chip stocks.
— Maya Chen, business desk, AXO News