Futures for the Nasdaq and S&P 500 dropped on Friday, with an AI-driven rally in U.S. stocks appearing to stumble as U.S. Treasury yields surged, raising concerns about inflation linked to ongoing conflicts in the Middle East.
The yield on the 10-year U.S. Treasury reached 4.54%, marking its highest point since May 2025.
Global bond yields also spiked. Investors began to fear that economic impacts from the conflict in Iran would lead to quicker-than-anticipated interest rate hikes, which could stifle growth.
The likelihood of the U.S. Federal Reserve raising interest rates by 25 basis points in December has more than doubled in the past week, sitting at around 40%, according to data from CME Group’s FedWatch tool.
Brent crude oil prices jumped nearly 3% to $109 a barrel, amid ongoing closures in the Strait of Hormuz and rising worries about global energy supplies. Efforts to resolve the two-and-a-half month conflict between Iran and the U.S. seem to be stagnating.
Ipek Ozkardeskaya, a senior analyst at Swissquote Bank, noted that “the longer the war in the Middle East lasts, the higher energy prices will rise,” leading to increased inflation expectations, borrowing costs, and ultimately, making the construction of new data centers more expensive.
She added, “This is a red flag that many tech investors have overlooked, seemingly dazzled by strong performance and even more optimistic profit expectations.”
As of 7:18 a.m. ET, the Dow E-mini was down 248 points (0.49%), while the S&P 500 E-mini dropped 64 points (0.85%), and the Nasdaq 100 E-mini fell by 372.25 points (1.25%).
This pullback came despite record-high trading on Wall Street, where both the S&P 500 and Nasdaq had recently closed at historic levels. The Dow Jones Industrial Average also climbed back over the $50,000 mark, while the S&P 500 index topped $7,500 for the first time.
There had been a period when markets seemed to downplay inflation concerns stemming from the Iran conflict, but major indexes maintained upward momentum as excitement around artificial intelligence bolstered gains.
Attention was also focused on the recent U.S.-China summit, which wrapped up without major breakthroughs. Discussions spanned multiple issues, including trade, tariffs, Iran, and Taiwan.
Among the companies trading premarket, semiconductor equipment maker Applied Materials saw a 2.8% drop despite predicting that its third-quarter sales and adjusted earnings would surpass Wall Street expectations.
Meanwhile, Nvidia experienced a 1.8% decline following a surge in pre-market trading. U.S. Trade Representative Jamison Greer stated that chip export controls were not a key focus during the China talks.
