By Ragini Mathur and Utkarsh Hathi
May 15 (Reuters) – Futures tracking the Nasdaq and the S&P 500 tumbled 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 May 2025. [US/]
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 CME Group’s FedWatch tool.
Brent crude prices rose almost 3% to $109 a barrel as the Strait of Hormuz remained closed, intensifying concerns over global energy supplies. Negotiations to end the 2-1/2-month-old conflict between Iran and the U.S. showed no signs of progress. [O/R]
“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 07:18 a.m. ET, Dow E-minis were down 248 points, or 0.49%, and S&P 500 E-minis were down 64 points, or 0.85%. Nasdaq 100 E-minis were down 372.25 points, or 1.25%.
The pullback follows another record-setting session on Wall Street, with the S&P 500 and the Nasdaq closing at record highs. The Dow Jones Industrial Average 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 fell 2.8% even after forecasting third-quarter revenue and adjusted profit above Wall Street estimates.
Meanwhile, Nvidia dipped 1.8% after sharp gains in the previous session. U.S. Trade Representative Jamieson Greer told Bloomberg TV that chip export controls were not a major topic in China talks.
Dexcom gained 3.5%. 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 down 0.3%, while United Airlines, Southwest Airlines, and Alaska Air fell between 0.9% and 1.3%.
(Reporting by Ragini Mathur and Utkarsh Hathi in Bengaluru; additional reporting by Purvi Agarwal; Editing by Devika Syamnath)
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