U.S. stock futures tumbled Friday morning, erasing gains from a recent AI-driven rally, as bond yields spiked and oil prices surged on heightened Middle East tensions. The 10-year Treasury yield hit 4.56%, its highest since May 2025, while Brent crude advanced to nearly $109 a barrel with the Strait of Hormuz closed.
At 8:31 a.m. ET, Dow e-minis fell 463 points (0.92%), S&P 500 e-minis lost 90 points (1.2%), and Nasdaq 100 e-minis slid 504.5 points (1.7%). The selloff was broad-based but tech stocks bore the brunt, as rising yields disproportionately weigh on high-growth names with distant cash flows.
Rates and Inflation in Focus
The jump in the 10-year yield reflects a repricing of Fed policy expectations after a string of hotter-than-expected inflation reports. The Labor Department's April consumer price index rose 0.6% month-over-month, pushing the annual rate to 3.8%—the fastest in three years. Producer prices also surged 1.4% in April, the largest monthly gain since March 2022.
“Markets are reacting to some of the recent inflation data, which has maybe been a bit higher than expected and continued relative robustness in the economy,” said Kiran Ganesh, multi-asset strategist at UBS Global Wealth Management. “And so markets are pricing in some risk that central banks might feel the need to hike interest rates.” According to CME Group's FedWatch tool, the probability of a rate hike in December has doubled to roughly 40% over the past week.
Oil Shock Compounds Pressure
Oil prices surged nearly 3% on Friday, with Brent crude hitting $109 a barrel, as the Strait of Hormuz remained closed and diplomatic talks between the U.S. and Iran showed no breakthrough. The spike threatens to fuel persistent energy-driven inflation across fuel, shipping, and goods.
Kansas City Fed President Jeffrey Schmid described inflation as the “most pressing risk” to the economy on Thursday, reinforcing expectations that the Fed will remain cautious about cutting rates. On Polymarket, traders assigned a 67% probability to the Fed not cutting rates at all in 2026, with only a 16% chance of a single 25-basis-point cut.
Market Leaders and Laggards
Several high-profile stocks felt the heat. Applied Materials (AMAT) dropped in premarket trading despite reporting quarterly revenue and adjusted profit above analyst estimates. Nvidia (NVDA) gave back some gains after a strong rally in the prior session. Airline stocks including Delta (DAL), United (UAL), Southwest (LUV), and Alaska Air (ALK) all declined as rising fuel costs weighed on margins.
The CBOE Volatility Index (VIX), often called the “fear gauge,” touched its highest level in two weeks, reflecting heightened investor anxiety. Defensive positioning has become the prevailing strategy as traders weigh whether the current pullback is merely profit-taking after record highs or the start of a broader correction driven by inflation and interest rate uncertainty.
“The bearish tilt could reverse fast if oil prices retreat or negotiations around the Strait of Hormuz move forward,” noted Ganesh. “Yields falling would let up on megacap tech stocks, too. Those names still have solid earnings momentum, and buyers have shown up on the dips.”
