By Elsie Kamsiyochi
Wall Street suffered a sharp selloff on Friday as rising Treasury yields and mounting inflation concerns rattled investor confidence, threatening to derail the powerful artificial intelligence-driven rally that has fueled markets in recent months. Major U.S. stock indexes moved lower as fears surrounding persistent inflation, escalating tensions in the Middle East, and higher borrowing costs overshadowed optimism around technology and AI stocks.
The downturn came as the yield on the benchmark 10-year U.S. Treasury note surged to 4.58%, its highest level since May 2025. Rising Treasury yields often pressure equities by increasing borrowing costs for businesses and making safer investments such as bonds more attractive compared to stocks. Investors grew increasingly nervous that inflationary pressures, worsened by geopolitical instability, could force the U.S. Federal Reserve to maintain tighter monetary policy or even raise interest rates again.
Concerns intensified following signs that the ongoing conflict involving Iran was beginning to weigh more heavily on the global economy. Markets reacted to increasing evidence that the prolonged war in the Middle East may fuel inflation further by disrupting energy supplies and driving up oil prices. Global bond markets also sold off as investors reassessed expectations for economic growth and future monetary policy.
Oil prices climbed significantly, with Brent crude rising 2.4% to over $108 per barrel after remarks from U.S. President and Iran’s foreign minister reduced hopes of a quick resolution to the conflict. Higher oil prices raise concerns that energy costs could feed into broader inflation, making it harder for central banks to bring price growth under control.
At the same time, traders continued digesting stronger-than-expected inflation data released earlier in the week, which reinforced fears that inflation may remain stubbornly high. According to market expectations tracked by CME Group’s FedWatch tool, the probability of the Federal Reserve raising interest rates by 25 basis points in December has more than doubled over the past week to around 40%.
Market strategist Kiran Ganesh of UBS Global Wealth Management said investors are responding to stronger economic data and inflation readings that have exceeded forecasts, increasing the risk that central banks may feel pressured to tighten policy further.
By mid-morning trading, all three major U.S. indexes were firmly in negative territory. The Dow Jones Industrial Average dropped nearly 0.9%, while the S&P 500 lost more than 1%. The technology-heavy Nasdaq Composite suffered the steepest decline, sliding roughly 1.6% as investors pulled back from high-growth tech names.
Technology stocks led the market decline, with chipmakers that had previously powered the AI boom facing heavy selling pressure. Shares of and each tumbled more than 4%, while sank nearly 7%. The broader semiconductor sector also weakened sharply, signaling a pause in investor enthusiasm for AI-related stocks after months of rapid gains.
The market retreat came just one day after Wall Street had celebrated another round of record highs, fueled largely by excitement around artificial intelligence. However, Friday’s decline suggested that macroeconomic concerns—including inflation, interest rates, and geopolitical risks—are once again taking center stage.
Investors also monitored the conclusion of the latest summit between the United States and China, which ended without major breakthroughs despite discussions covering trade disputes, tariffs, Iran, and Taiwan. The lack of significant progress added another layer of uncertainty for markets already coping with elevated geopolitical tensions.
Despite the broader weakness, some individual stocks bucked the downward trend. Shares of rose more than 1% after billionaire investor revealed that his hedge fund, Pershing Square, would disclose a new investment position in the tech giant later in the day. Investors viewed the move as a vote of confidence in Microsoft’s long-term valuation and AI leadership.
Medical device maker jumped nearly 6% after announcing plans to appoint two independent directors and restructure a key board committee in cooperation with activist investor Elliott Investment Management. The move was welcomed by shareholders hoping for stronger governance and operational improvements.
Meanwhile, semiconductor equipment manufacturer slipped despite forecasting stronger-than-expected quarterly revenue and profit, showing that even positive earnings updates struggled to overcome broader weakness in the chip sector.
Airline companies also came under pressure as rising oil prices raised concerns over higher fuel expenses. Shares of major carriers including , , , and all moved lower.
Investor anxiety was further reflected in the rise of the CBOE Volatility Index, commonly known as Wall Street’s “fear gauge,” which climbed as traders sought protection against increased market swings.
Overall, Friday’s market decline highlighted growing tension between excitement surrounding artificial intelligence and the economic realities of inflation, interest rates, and global instability.
While AI optimism has helped push stock markets to record highs, rising yields and geopolitical uncertainty are reminding investors that the rally remains vulnerable to broader macroeconomic pressures.
Source Reuters
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