NEW YORK: Wall Street’s main indexes pulled back sharply on Friday, as inflation fears triggered by the Middle East conflict drove up Treasury yields and threatened to derail an AI-fueled rally that had driven stocks to record highs.
The yield on 10-year Treasury notes, a benchmark for global borrowing costs, hit 4.58 percent - its highest level since May 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 US Federal Reserve hiking interest rates by 25 basis points in December have more than doubled over the past week to about 40 percent, according to CME Group’s FedWatch tool, after hotter-than-expected inflation readings signaled price pressures may prove harder to contain.
“Investors are repricing oil higher for longer and factoring in a more persistent inflation backdrop,” said Tom Ross, Head of High Yield at Janus Henderson Investors.
“The other, less talked about factor we believe the market is starting to get its head around is the impact of AI… the short-term impact of the huge wave of data center rollout is inflationary.”
Brent crude prices rose over 3 percent to USD109.59 a barrel after comments from US President Donald Trump and Iran’s foreign minister dented hopes of a quick end to the 2-1/2-month-old conflict in the Middle East.
At 12:08 p.m. ET, the Dow Jones Industrial Average fell 519.39 points, or 1.04 percent, to 49,544.07, the S&P 500 lost 79.60 points, or 1.06 percent, to 7,421.64 and the Nasdaq Composite lost 360.56 points, or 1.35 percent, to 26,274.66.
The energy sector was the lone gainer, rising 1.4 percent, while all other sectors traded lower, led by losses in technology.
Recently strong chip stocks came under pressure with Nvidia and AMD each falling more than 3 percent, while Intel dropped 6.5 percent, and the Philadelphia SE Semiconductor Index slid 3.5 percent.
The pullback followed another record-setting session on Wall Street on Thursday, when investors had largely brushed aside inflation worries and pushed stocks higher on continued enthusiasm around artificial intelligence.
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