Futures tracking the Nasdaq and S&P 500 tumbled more than 1% on Friday, with an AI-driven rally in US stocks poised to stall, as the Middle East conflict lifted Treasury yields on worries about higher inflation.

The yield on 10-year Treasury notes, a measure of global borrowing costs, hit 4.54% – its highest level since early June 2025.

Global bond yields also jumped as mounting evidence of economic damage from the Iran war prompted investors to speculate that interest rates would rise faster than expected and hurt growth.

The odds of the US Federal Reserve raising interest rates by 25 basis points in December have more than doubled in the past week to nearly 40%, according to CMEGroup’s FedWatch tool.

Brent crude rose nearly 3% to $109 a barrel as the Strait of Hormuz remained closed, raising concerns over global energy supplies.

“The longer the war in the Middle East goes on, the higher the energy prices — the higher the inflation expectations and the higher the borrowing costs, and the higher the cost of building that additional data center,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

“This is a red flag that many tech investors are ignoring, blinded by expectations of shiny earnings and even higher earnings.”

At 05:38 am ET, the Dow E-minis were down 330 points, or 0.66%, and the 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 and 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 earlier appeared to shrug off inflation concerns linked to the Iran conflict, with artificial intelligence fueling a rally with ambient optimism and keeping major indexes on track for weekly gains.

Investors also closely watched the US-China summit, which ended on Friday without a major breakthrough, with discussions between the two nations covering a broad agenda covering trade, tariffs, Iran and Taiwan.

Among pre-market movers, semiconductor equipment maker Applied Materials fell 2.8% even after missing a third-quarter revenue forecast and adjusted profit above Wall Street estimates.

Dexcom rose 2%. The medical device maker said it would appoint two independent directors and reform a key board committee along with activist investor Elliott Investment Management.

Airline stocks were broadly lower, with Delta Air Lines, United Airlines and Southwest Airlines falling between 1.3% and 1.5%, while Alaska Air shares fell 1.8%.