US stock index futures moved lower during evening trading as geopolitical risks returned to the center of market attention following continued tensions between the United States and Iran over the Strait of Hormuz.
Investors also reduced their exposure to risk before the release of US inflation data and the start of the second quarter corporate earnings season.
S&P 500 futures declined 0.2% to 7,548.25 points, while Nasdaq 100 futures lost 0.3% to reach 29,386.25 points. Dow Jones futures fell 0.17% to 52,672 points.
The decline followed a weak session on Wall Street, where technology companies and semiconductor stocks recorded the sharpest losses. Investors questioned whether the strong valuations of companies benefiting from artificial intelligence spending could be sustained.
Nasdaq Composite dropped 1.55%, while the S&P 500 declined 0.8% and the Dow Jones Industrial Average lost 0.26%.
The upcoming earnings reports from ASML and TSMC will receive particular attention because they may provide a clearer picture of demand across the semiconductor industry and whether current valuations remain justified.
Tensions intensified after US Central Command announced additional strikes against Iranian targets, shortly after President Donald Trump reinstated restrictions on Iranian shipping.
Trump also proposed charging ships a fee equal to 20% of their cargo value in exchange for US protection while passing through the Strait of Hormuz.
This proposal could increase shipping and insurance costs while adding further uncertainty to global energy and trade flows.
Iran has continued to insist that vessels crossing the strait must use routes approved by Tehran after several cargo ships were targeted in recent days.
Although shipping through the waterway has not stopped completely, continued attacks and threats have made the outlook for energy supplies increasingly uncertain.
Oil prices jumped nearly 10% during one session as traders added a larger geopolitical risk premium to prices.
The impact of higher oil prices extends beyond energy markets. Persistently elevated prices could increase transportation and production costs, slow the decline in inflation, and give the Federal Reserve another reason to maintain restrictive monetary policy.
Markets are preparing for earnings reports from JPMorgan Chase, Bank of America, Goldman Sachs, Wells Fargo, and Citigroup as the second quarter reporting season begins.
Investors will focus on trading and investment banking revenue, credit quality, loan growth, and the ability of banks to protect profit margins while funding costs remain elevated.
These results will provide an early indication of how well major US companies are coping with high interest rates, volatile energy markets, and growing geopolitical disruption.
Any clear weakness in profits or forward guidance could add pressure to stock indexes, particularly after the strong gains recorded by several market sectors.
Markets are awaiting the US consumer price index report for June, with economists expecting core inflation to increase by 0.2% from the previous month.
A reading of 0.3% or higher could encourage investors to increase expectations for an interest rate rise at the July meeting or later in the year.
Federal funds futures are pricing in about 43 basis points of interest rate increases during the year as expectations for monetary easing continue to fade.
Federal Reserve Governor Christopher Waller said the central bank may need to raise rates soon if inflation remains well above its annual target of 2%.
His comments carry additional weight as rising oil prices threaten to create another round of inflationary pressure.
Investors are also awaiting producer price data and Federal Reserve Chair Kevin Warsh’s testimony before Congress for clearer guidance on inflation, economic growth, and the future direction of interest rates.
The US Dollar Index remained close to 101.18 as investors avoided taking large positions before the inflation report.
The dollar also received support from rising Middle East tensions and higher oil prices because the US economy is generally better positioned to absorb energy shocks than economies that depend heavily on imported fuel.
The euro recorded a limited gain to $1.1392, while sterling advanced to $1.3358. However, high oil prices and the possibility of tighter US monetary policy restricted their upward movement.
The Japanese yen traded near 162.30 per dollar, remaining close to its weakest level in almost four decades.
Traders remained cautious about possible intervention in the foreign exchange market or a change in the asset allocation of Japan’s Government Pension Investment Fund.
Any lasting impact on the yen would depend on how quickly the changes were implemented and how significantly the fund increased its exposure to Japanese stocks and bonds.
Limited or delayed adjustments would probably not be enough to reverse the currency’s broader direction, particularly while the yield gap between Japan and the United States remains wide.
Elsewhere, the Australian dollar advanced to $0.6934, while the New Zealand dollar strengthened to $0.5791 as expectations for higher interest rates increased.
Cryptocurrencies also recorded limited gains, with Bitcoin rising to $62,776.09 and Ethereum advancing to $1,788.44. However, the sector remains highly sensitive to global liquidity conditions and broader risk appetite.
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