US Stock Futures Dip as Iran War, High Inflation Clouds Outlooks

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(Bloomberg) — US stock futures extended a decline Thursday after intensifying war in the Middle East and inflation risks leave investors jittery about what’s to come. 

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Contracts on the S&P 500 Index dipped 0.7% as of 8:45 a.m. in New York, while Nasdaq 100 futures fell 0.9%. Brent crude oil prices jumped to $114. The Cboe Volatility Index rose to 27.

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Iran continued to attack energy assets around the Middle East even as President Donald Trump called for de-escalation. Increasing damage to key oil and gas infrastructure in the Middle East has sent oil prices surging. 

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“The market is looking for an off-ramp, the market is looking for a ceasefire,” Bank of America strategist Michael Hartnett said in an interview on Bloomberg TV. Financial conditions have been tightening, but the Federal Reserve finds it tough to address the squeeze if oil prices are high, he continued.

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Meanwhile, the US got fresh labor market data Thursday morning. Initial jobless claims for last week came in lower than expectations, while continuing claims rose.  

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Concerns around artificial intelligence-related job losses have risen in recent weeks. London-based bank HSBC Holdings Plc is reportedly mulling cuts to around 20,000 roles — about 10% of its workforce — as it bets that AI will shrink its middle and back offices.

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On Wednesday, Fed Chair Jerome Powell said officials will not cut interest rates until inflation cools, emphasizing it was “too soon” to determine the impact of surging oil prices on the US economy. The central bank held rates steady for a second straight meeting. 

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Bond traders no longer price in any chance that the Fed will cut rates in 2026 driven by the Bank of England’s decision to keep rates unchanged.

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“From the market’s point of view, oil prices are now driving not just stock prices, but Federal Reserve policy,” said Dennis Follmer, chief investment officer, Montis Financial. “The duration of this oil price spike is exactly what the market is trying to figure out, and that’s why there is volatility.”

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JPMorgan analysts say that investors who assume the Iran war will end quickly are complacent, failing to price in the economic damage from rising energy costs and supply chain constraints from the Strait of Hormuz closure.

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In other news, Eli Lilly & Co.’s experimental diabetes shot helped patients lose more weight than any drug currently on the market. Uber Technologies Inc. said it would invest $1.25 billion in electric carmaker Rivian Automotive Inc. to launch a robotaxi fleet. Shares in Rivian jumped 8% on the news, while rival Tesla Inc. dropped about 1.5%.

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Sectors to Watch

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