US stocks retreated from artificial-intelligence-fueled record highs on Friday as rising crude prices ignited global inflation fears.

All three major U.S. stock indexes edged lower on a jump in benchmark Treasury yields, reflecting rising energy prices and concerns about long-term inflation, which offered an attractive alternative to high-risk equities.

“There’s a sense that the market has gotten way ahead of itself,” said Kenny Polcari, chief market strategist at Slatestone Wealth in Jupiter, Florida. “It wasn’t paying enough attention to the bond market and what the economic data was telling it. It got caught up in this momentum AI trading.” Crude prices rose after combative comments from US President Donald Trump and Iranian Foreign Minister Abbas Araqchi cast doubt on whether their countries’ fragile ceasefire would hold and whether normal traffic through the crucial Strait of Hormuz would soon resume. Trump’s meeting with Chinese President Xi Jinping ended with few tangible results to show for it, with Beijing offering no tangible help toward resolving the US-Iran conflict.

“It was certainly encouraging to see the two countries reconnect at the highest level. Historically, events like this bring headlines outlining various commitments,” said Matthew Kator, managing partner at wealth management firm Cater Group in Lennox, Massachusetts. “This week’s meeting looked like more of a reset in the relationship between the two countries and less short-term, quantifiable results.”

The yield on 10-year Treasury notes, a gauge of global borrowing costs, touched its highest level since May 2025, as markets rallied from Trump’s “Liberation Day” tariff announcement. Global bond yields also rose on mounting evidence of widespread economic damage from the Iran war.

The end of the Powell era

Friday is Jerome Powell’s last day as chairman of the US Federal Reserve, a post he has held during the pandemic, a period of inflation and interest rate hikes and cutting cycles.

Incoming Chair Kevin Warsh has been dogged by the potential need for a rate hike if a protracted Iran war leads to sticky inflation.

“The weakness today is highlighting concerns that recent (inflation) figures are not fleeting, and until we see some consistent, meaningful change in the data it’s hard to imagine the new chair communicating anything other than a neutral policy stance at best,” Keytor added.

According to CME Group’s FedWatch tool, the probability of the Fed raising interest rates by 25 basis points in December is approaching 40%, up from 13.6% a week ago.

According to preliminary data, the S&P 500 fell 91.62 points, or 1.22%, to close at 7,409.62 points, while the Nasdaq Composite shed 412.61 points, or 1.53%, to close at 26,226.35. The Dow Jones Industrial Average fell 537.35 points, or 1.06%, to 49,531.70.

The Philadelphia SE Semiconductor Index was dragged lower by stocks benefiting from the AI ​​hyperscalar phenomenon.

Nvidia, AMD and Intel ended the session much lower. Microsoft rose following the announcement of a new position in the company taken over by Bill Ackman’s hedge fund Pershing Square. Dexcom jumped after the medical device maker announced it would appoint two independent directors and revamp its board committee along with activist investor Elliott Investment Management.

Ford pulled back from a nearly 21% jump over the past two sessions on optimism over the automaker’s energy storage business.