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Futures tracking the Nasdaq and the S&P 500 tumbled more than 1% on Friday, with an AI-driven rally in U.S. stocks poised to stall, as Treasury yields jumped on concerns about higher inflation driven by the Middle East conflict.
The yield on 10-year Treasury notes , a benchmark for global borrowing costs, hit 4.54% - its highest level since early June 2025.
Global bond yields also jumped as increasing evidence of economic damage from the Iran war prompted investors to assume interest rates will rise faster than expected and growth will suffer.
The odds of the U.S. Federal Reserve hiking interest rates by 25 basis points in December have more than doubled over the past week to about 40%, according to CMEGroup's Fedwatch tool.
Brent crude prices rose almost 3% to $109 a barrel as the Strait of Hormuz remained closed, heightening concerns over global energy supplies.
"The longer the Middle East war drags on, the higher energy prices rise – fuelling inflation expectations and borrowing costs, and increasing the cost of building that extra data center," said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
"This is a red flag that many tech investors have been ignoring, blinded by shiny earnings and even shinier earnings expectations."
At 05:38 a.m. ET, Dow E-minis were down 330 points, or 0.66%, and S&P 500 E-minis were down 80.75 points, or 1.07%. Nasdaq 100 E-minis were down 463.25 points, or 1.56%.
The pullback follows another record-setting session on Wall Street, with the S&P 500 (.SPX) and the Nasdaq (.IXIC) closing at record highs. The Dow Jones Industrial Average (.DJI) reclaimed the 50,000 milestone, while the S&P 500 topped 7,500 for the first time.
Markets had earlier appeared to shake off inflation concerns tied to the Iran conflict, with enthusiasm around artificial intelligence powering a rally and keeping major indexes on track for weekly gains.
Investors also closely watched the U.S.-China summit, which wrapped up on Friday with no major breakthrough, after discussions between the two nations covered a sweeping agenda spanning trade, tariffs, Iran and Taiwan.
Among premarket movers, semiconductor equipment maker Applied Materials (AMAT.O) fell 2.8% even after forecasting third-quarter revenue and adjusted profit above Wall Street estimates.
Dexcom (DXCM.O) gained 2%. The medical device maker said it will appoint two independent directors and revamp a key board committee in collaboration with activist investor Elliott Investment Management.
Airline stocks were broadly lower as surging oil prices weighed on the sector, with Delta Air Lines (DAL.N), United Airlines (UAL.O) and Southwest Airlines (LUV.N) falling between 1.3% and 1.5%, while Alaska Air (ALK.N) shares declined 1.8%.
