After a relatively quiet start, stocks drifted lower on Thursday as an intraday surge in oil prices outweighed an early rebound across technology stocks and another generally encouraging batch of corporate earnings. The S&P 500 slipped 0.2%, giving back an early gain but finding some support near the 7,700 level, while the Nasdaq Composite edged 0.1% lower and the DJIA lagged with a 0.9% decline. The Russell 2000 (-0.6%) and S&P MidCap 400 (-0.3%) also retreated from yesterday's record highs.

Technology initially provided a stabilizing influence after opening the session under pressure. Sandisk (SNDK 1258.58, -91.92, -6.81%) and Western Digital (WDC 451.52, -67.65, -13.03%) both suffered sharp opening losses following their earnings reports, but recovered considerably from their worst levels as the morning progressed. Sandisk delivered strong quarterly results, though its guidance disappointed investors, while Western Digital appeared to face some profit-taking after its recent rally as investors looked for a more robust report. The recovery in both memory names helped spark an early rebound across the broader semiconductor group. The PHLX Semiconductor Index climbed more than 1.0% before surrendering most of that advance to finish just 0.3% higher. Gains were relatively modest but consistent across much of the group, with Advanced Micro Devices (AMD 489.28, +7.23, +1.50%) reclaiming a portion of its post-earnings decline.

The information technology sector (+0.1%) finished as one of just three S&P 500 sectors in positive territory. Software remained a weak spot within the sector. AppLovin (APP 335.67, -82.13, -19.66%) plunged after reporting in-line earnings and weaker-than-expected revenue, while Datadog (DDOG 229.29, -53.88, -19.03%) sold off as investors focused on a slowdown in sequential growth. Those declines weighed on the iShares GS Software ETF (IGV 99.46, -1.86, -1.83%), though continued strength in Microsoft (MSFT 499.86, +12.40, +2.54%) helped offset some of the weakness.

The early rebound in technology took some momentum away from the broader market, which had initially benefited from strength across more defensive and cyclical areas. The tone shifted late in the morning, however, after reports that Houthi forces had attacked a Saudi-flagged tanker in the Red Sea sent oil prices sharply higher. Reuters later reported that a draft version of the proposed U.S.-Iran agreement, which is expected to be voted on by Iran's parliament, would prohibit U.S.- and Israel-linked vessels from transiting the Strait of Hormuz. WTI crude oil futures settled $2.09 higher (+2.8%) at $77.27 per barrel, leaving the energy sector (+1.6%) as the clear standout. The increase in oil prices also pushed Treasury yields higher, contributing to a less supportive backdrop for stocks throughout the remainder of the session.

The health care sector (+0.1%) eked out a modest gain shortly before the close, joining energy and information technology as the only sectors to finish higher.

Meanwhile, the communication services sector (-0.7%) ranked among the day's weakest performers. Alphabet (GOOG 356.62, -3.51, -0.97%) remained under pressure following reports yesterday that several high-profile AI leaders are leaving the company. Bloomberg also reported that the company is preparing to raise approximately $25 billion through a bond offering. The Trade Desk (TTD 17.67, -1.29, -6.80%) added to the sector's weakness ahead of its earnings report after the close.

The industrials sector (-0.8%) also lagged as Honeywell (HON 240.74, -7.38, -2.97%) and Axon (AXON 522.46, -87.03, -14.28%) suffered sharp post-earnings declines. The group faced additional pressure from oil-sensitive airline and trucking names as crude prices climbed.

Elsewhere, the materials sector (-0.9%) pulled back following its strong start to the week, while the utilities (-0.9%) and real estate (-1.0%) sectors continued to underperform.

Today's action marked another pause following the market's strong rally earlier this week, as investors continued to reward solid earnings while holding technology companies to a high bar. Attention now turns to Friday's July Employment Situation Report and next week's Consumer Price Index, with the latter taking on added significance after the Financial Times reported that Fed Chair Kevin Warsh remains open to raising rates at the upcoming FOMC meeting if inflation fails to cool.

U.S. Treasuries retreated on Thursday, pulling back from three days of steady gains. The 2-year note yield settled up seven basis points to 4.25% and the 10-year note yield settled up five basis points to 4.67%. 

• Russell 2000: +20.9% YTD
• S&P Mid Cap 400: +16.0% YTD
• Nasdaq Composite: +13.4% YTD
• S&P 500: +12.6% YTD
• DJIA: +12.1% YTD

Reviewing today's data:

• Q2 Productivity - Prel 1.4% (Briefing.com consensus 0.8%); Prior was revised to 0.8% from 0.3%, Q2 Unit Labor Costs - Prel 1.3% (Briefing.com consensus 1.7%); Prior was revised to 1.3% from 1.8%
  • The key takeaway from the report is that rising productivity helped keep labor costs in check.
• Weekly Initial Claims 199K (Briefing.com consensus 200K); Prior was revised to 198K from 197K, Weekly Continuing Claims 1.801 mln; Prior was revised to 1.777 mln from 1.782 mln
  • The key takeaway from the report, once again, is the extraordinarily low level of initial jobless claims, which reflects an environment in which employers are still reluctant to cut staff. That will be read as a good sign for economic demand.
• June Wholesale Inventories 0.2% (Briefing.com consensus 0.3%); Prior 0.3%