Global equity markets declined on Monday. A fresh escalation of hostilities in the Middle East pushed oil prices and bond yields higher, while U.S. stock index futures rose collectively following a sharp drop on Friday. Semiconductor and space-related stocks saw pre-market rebounds, temporarily halting the tech-led sell-off.
As of writing, Dow futures were up 0.30%, S&P 500 futures gained 0.77%, and Nasdaq futures advanced 1.42%.
The European Stoxx 600 index fell 0.7%, with interest-rate-sensitive stocks in sectors like construction and retail declining more than tech shares. Major indices in Frankfurt, Paris, and London saw losses ranging from 0.4% to 1%.
Europe's relative lack of a tech hardware sector and greater exposure to energy prices meant its major markets were largely sidelined during the recent rally that swept Wall Street, Tokyo, and Seoul. However, this also makes European markets more defensive compared to others in the face of a significant tech sell-off.
South Korean Market Plunge
Although U.S. stocks temporarily stabilized, the shockwaves from Friday's plunge continued to ripple through other markets.
Asian benchmark indices fell 3.2%, with South Korea's KOSPI index plunging 8.3%. The index, which had been one of the world's strongest performers this year, tumbled 8.3% on Monday, retreating more than 16% from the record high set last week.
Japan's Nikkei 225 index fell nearly 4%, with popular stocks in the computer chip production supply chain experiencing the largest drops. Taiwan's TAIEX index declined 3.5%.
Marc Velan, Chief Investment Officer at Lucerne Asset Management in Singapore, stated, "This move looks more like an unwinding of positioning and momentum trades rather than a reassessment of the long-term outlook for AI."
He added, "Korean tech stocks have been among the strongest performers globally and were very crowded trades. So, as rate expectations shifted following the jobs report, these stocks naturally became a source of liquidity for investors."
Chip Stocks Attract Dip-Buying
Chip stocks, which were among the hardest hit in Friday's sell-off, attracted bargain-hunting in Monday's pre-market session. Marvell Technology (NASDAQ: MRVL) rose 6.7%, and Micron Technology (NASDAQ: MU) gained nearly 4.3%. NVIDIA (NASDAQ: NVDA) led gains among the "Magnificent Seven" tech giants.
Bloomberg strategist Skylar Montgomery Koning noted, "The two key drivers for equities—AI and energy—have both turned negative, pointing to downside pressure for stocks. While tech weakness looks more like a pullback than the start of a bear market, investors are entering a two-week period filled with event risk as oil prices rise again. It's hard to argue for adding risk exposure in the near term."
The tech sell-off was triggered by two main factors: a disappointing earnings outlook from chipmaker Broadcom (NASDAQ: AVGO) last week and a surprisingly strong U.S. jobs report released on Friday. The robust non-farm payrolls data led traders to price in the possibility of a Federal Reserve rate hike this year. The escalation of Middle East conflict also dampened market sentiment.
A Challenging Start
Investors faced multiple headwinds at the start of the week: concerns that the previously red-hot AI rally had moved too far, too fast; renewed escalation of Middle East conflict; and intensifying inflationary pressures that further bolstered the case for Fed rate hikes.
Additionally, several companies are conducting concentrated new share issuances to raise funds for advancing their AI businesses. This includes the upcoming SpaceX listing slated to conclude this week. This has raised market questions about whether there is sufficient buying interest to absorb this new supply of shares.
Michael Bell of RBC Bluebay Asset Management said, "Equity markets currently face three potential risks: continued closure of the Strait of Hormuz, inflation and rates rising faster than expected, and profit-taking on previously stellar-performing assets. Some hedging and diversification against these three risks may be a sensible choice."
Lars Skovgaard, Senior Investment Strategist at Danske Bank, commented, "The market had gone very far without a correction. What's truly surprising is not that we're seeing a sell-off, but that it hadn't happened sooner."
Israel-Iran Strikes
Following Israel's retaliation for an Iranian missile attack, Brent crude oil rose 4.6%, climbing above $97 per barrel. U.S. WTI crude gained 4.5% to $94.59 per barrel.
Both major oil benchmarks have risen over 60% year-to-date but remain significantly below March levels when Brent traded around $120 per barrel.
Analysts at Saxo Bank stated, "A lasting peace agreement seems increasingly difficult to achieve." They added, "The virtual closure of the Strait of Hormuz continues to tighten global energy markets, with several oil majors warning that the window for physical supply shortages to begin may be measured in weeks, not months."
Geopolitically, Israel and Iran exchanged missile strikes on Monday, despite U.S. President Donald Trump's calls for a ceasefire and an opportunity for peace talks.
This exchange was one of the most serious tests since the April 8 ceasefire agreement, which was intended to halt fighting between the U.S., Israel, and Iran.
Meanwhile, progress between the U.S. and Iran on reaching an interim agreement to end the war appears limited, despite Trump's repeated statements that a deal is imminent.
The Final Straw
In bond markets, the strong jobs report pushed the U.S. 2-year Treasury yield up more than 11 basis points on Friday. On Monday, the yield rose a further 1.5 basis points to 4.1784% as markets priced in a Fed rate hike this year.
The benchmark 10-year U.S. Treasury yield rose 3.5 basis points to 4.57% on Monday. Traders further increased bets on a Fed rate hike this year.
The interest rate swaps market indicates traders expect the Fed to hike rates by at least 25 basis points before its December policy meeting, with a 25% probability of an additional hike.
Danske Bank's Skovgaard said, "Rising yields are what's really breaking the market's back. It's the final straw."
He added, "As volatility increases, some investors are forced to sell to reduce equity exposure."
Eurozone government bond yields rose in opening trade. LSEG data showed the 10-year German Bund yield touched a two-week high of 3.072%. Meanwhile, investors are focused on the upcoming European Central Bank meeting, where markets expect the ECB to deliver its first rate hike since 2023.
In currency markets, the U.S. dollar index held steady at 100.098 after hitting an overnight high of 100.174. The dollar had reached a two-month high overnight following the new round of Middle East attacks.
U.S. inflation data due on Wednesday will be a key factor influencing rate expectations, as markets also await the Fed's policy decision on June 17.
The dollar held above 160 yen, keeping investors alert to potential intervention by Japanese authorities. The euro hovered around $1.1518.
This Week's Focus: U.S. CPI, ECB, and SpaceX Listing
Market focus this week will center on the large SpaceX listing. The company is expected to price on Thursday and begin trading on Friday.
Meanwhile, inflation data will also be a key focus. U.S. Consumer Price Index (CPI) data is due Wednesday, and the Bank of Canada and European Central Bank will hold policy meetings.
Bitcoin rose 2.1%, hovering above $63,000. It had fallen below the $60,000 level on Friday for the first time since Trump's 2024 re-election. Strategy Inc. Chairman Michael Saylor hinted at potential further Bitcoin purchases.
Naeem Aslam, analyst at Zaye Capital Markets, said this "fragile" recovery reflects renewed inflows into exchange-traded funds after 13 consecutive days of outflows totaling $4.4 billion, while major cryptocurrency holders continue to signal long-term accumulation.
The market anticipates that following SpaceX's listing, large companies like Anthropic and OpenAI will also launch IPOs in the coming months. Due to the massive fundraising scale of these firms, brokers are concerned this could draw funds away from other assets.
Nick Ferres, Chief Investment Officer at Vantage Point Asset Management in Singapore, stated, "The market narrative may have shifted—from expectations of moderate inflation and rate cuts to potential 'economic overheating.' This could push U.S. Treasury yields higher, elevate the short-term rate path, and lead to a tightening of liquidity."
Stocks in Focus
NVIDIA (NASDAQ: NVDA) announced a collaboration with South Korean tech giant SK Hynix to supply high-end memory chips for its AI computing base construction, with its shares rising 2.3%.
Marvell Technology (NASDAQ: MRVL) and Flex Ltd (NASDAQ: FLEX) will be added to the S&P 500 index. Following the announcement, Marvell surged nearly 9% and Flex jumped 4%. Campbell Soup Company and Pool Corporation will be removed from the index to make way for them.
Nurix Therapeutics (NASDAQ: NRIX) announced it will collaborate with Roche to co-develop and commercialize the protein degrader drug bezosbrotigib (for treating cancer and autoimmune diseases), with its shares soaring 24%.
Ahead of its aerospace business spin-off, Honeywell (NASDAQ: HON) reaffirmed its full-year 2026 guidance, with its shares edging higher.
The chip sector saw a strong rebound following Friday's sharp decline: Micron Technology (NASDAQ: MU) shares recovered 7%, Broadcom (NASDAQ: AVGO) rose 3%, and Advanced Micro Devices (NASDAQ: AMD) surged 2.7%.
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