BY COMFORT OGBONNA
U.S. stock index futures moved slightly lower on Thursday as escalating tensions between the United States and Iran rattled investor confidence and reduced hopes for a near-term diplomatic breakthrough, while traders also awaited a key inflation report that could shape expectations for Federal Reserve policy in the months ahead.
Market sentiment weakened after Tehran launched an attack on a U.S. airbase following fresh American strikes earlier in the day. The renewed military confrontation came only hours after President Donald Trump dismissed reports suggesting that Washington was nearing a compromise agreement with Iran, dampening investor optimism that the conflict could soon ease.
The geopolitical escalation pushed oil prices sharply higher, with crude futures climbing more than 2% as fears intensified over prolonged disruptions to global energy supplies. At the same time, U.S. Treasury yields edged upward, reflecting growing concerns that elevated energy costs and supply chain disruptions could reignite inflationary pressures.
Investors remain particularly focused on the continued closure of the Strait of Hormuz, one of the world’s most critical energy shipping routes. The waterway handles a substantial portion of global oil and liquefied natural gas exports, and ongoing disruptions there have fueled worries that inflation could remain stubbornly high despite previous signs of easing price pressures.
Attention later in the day is expected to center on the release of the U.S. personal consumption expenditures report, which includes the Federal Reserve’s preferred measure of inflation. The data is being closely watched by markets for clues about the future direction of monetary policy under new Federal Reserve Chair Kevin Warsh.
Analysts said a stronger-than-expected inflation reading could strengthen expectations that the central bank may need to maintain tight monetary policy for longer or even consider another interest rate increase later this year.
Ipek Ozkardeskaya, senior market analyst at Swissquote Bank, said that an inflation figure above expectations would likely reinforce hawkish Federal Reserve expectations and increase the probability of an additional rate hike before the end of the year.
She added that even if inflation data comes in softer or matches forecasts, expectations for tighter monetary policy are unlikely to disappear completely while geopolitical instability and elevated energy prices continue to pose risks to the broader economy.
Current market pricing suggests investors largely expect the Federal Reserve to keep interest rates unchanged for the remainder of the year, although some traders still see a possibility of a 25-basis-point increase in December if inflation remains persistent.
By 04:54 a.m. ET, Dow E-mini futures were down 53 points, or 0.1%, while S&P 500 E-mini futures slipped 6.75 points, or 0.09%. Nasdaq 100 E-mini futures fell 63.5 points, or 0.21%, reflecting pressure on technology shares after a strong rally in recent sessions.
Despite Thursday’s cautious tone, investor enthusiasm surrounding artificial intelligence and strong corporate earnings growth has continued to support the broader market in recent weeks. All three major U.S. indexes closed at record highs on Wednesday, highlighting the resilience of investor appetite even amid mounting geopolitical uncertainty.
The S&P 500 is also on pace for its ninth consecutive weekly gain, which would mark its longest winning streak since December 2023. Analysts said continued optimism surrounding AI-related companies and improving earnings outlooks have helped offset concerns tied to inflation and global conflict.
In premarket trading, several major companies saw notable moves following earnings reports and industry developments.
Shares of Marvell Technology fell 2.2% after the semiconductor company released first-quarter results. Despite the decline, the stock has more than doubled in value so far this year as investor demand for AI-linked chipmakers remains strong.
HP shares slipped 1.4% after the company reported second-quarter results and warned that rising memory costs could pressure profit margins in the coming quarters.
Meanwhile, drone-related companies surged after a report in The Wall Street Journal said the Trump administration was in discussions regarding funding support for drone manufacturers.
Shares of Unusual Machines jumped 33% in premarket trading, while AeroVironment gained 9.1% and Kratos Defense & Security Solutions rose 11.2% as investors reacted positively to the possibility of increased government backing for the sector.
Analysts said markets are likely to remain highly sensitive to geopolitical developments, energy prices, inflation data, and Federal Reserve commentary over the coming weeks as investors attempt to assess the outlook for both the economy and interest rates.
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