US stock index futures are pointing lower ahead of Wednesday's trading session. As of writing, Dow Jones futures are down 1.15%, S&P 500 futures have declined by 0.92%, and Nasdaq futures have dropped 1.38%.
Major European indices are also trading in negative territory. The German DAX is down 2.16%, the UK's FTSE 100 has fallen 1.33%, France's CAC 40 has lost 2.01%, and the Euro Stoxx 50 is 1.85% lower.
Oil prices have surged sharply following renewed geopolitical conflict. WTI crude is up 5.51% to $74.32 per barrel, while Brent crude has jumped 5.69% to $78.38 per barrel.
Key Market Developments
Tensions between the US and Iran have escalated significantly. Early Wednesday local time, explosions were reported in several locations in southern Iran. US officials subsequently stated they had launched a new round of airstrikes on coastal targets in Iran and announced the revocation of a 60-day authorization for Iranian oil production, delivery, and sales, calling it a "strong response" to recent Iranian attacks on vessels near the Strait of Hormuz. Iran condemned the US actions, stating the strikes and renewed oil sanctions severely violate the existing memorandum of understanding between the two nations. The Islamic Revolutionary Guard Corps of Iran claimed to have struck 85 US military targets in Bahrain and Kuwait in retaliation for alleged US violations of a ceasefire. Furthermore, the US President stated at a NATO summit that he believes the Iran-US memorandum of understanding "is over," indicating a desire to cease dealings with Iran.
Wall Street strategy appears to be pivoting from the AI computing beta trade towards a focus on "cash flow defense." As AI semiconductor stocks correct, analysts at Jefferies are advising investors to hold high-quality stocks with low profit-taking pressure and low crowding to weather a potential summer pullback in technology shares. This view aligns with other top strategists, such as those at Morgan Stanley, who recommend reducing exposure to high-crowding, high-leverage, high-beta AI computing trades and rotating into high-quality, low-momentum stocks with strong cash flow, as well as cyclical and defensive sectors whose fundamentals are strong but whose gains this year have lagged behind tech.
After an 18% gain year-to-date, the Nasdaq 100's rally may be stalling. Traders on the prediction market platform Kalshi see roughly a 50/50 chance that the index closes the year above the 30,000-point level it first crossed in late May. The index's significant rally this year followed a market low in late March. While it surged over 33% from that point to early June on renewed AI optimism, current market sentiment suggests the bullish momentum may be fading.
While interest rate markets still price in some chance of further Federal Reserve tightening, options traders are quietly positioning for a more dovish outcome. Flows in options tied to the Secured Overnight Financing Rate (SOFR) have recently shifted towards positions that would benefit if market expectations for rate hikes fade. This shift followed comments from the Fed Chair last week noting that inflation risks have receded somewhat. Some strategists are questioning the market's pricing of further policy tightening, especially as falling oil prices—now retreating towards pre-conflict levels—ease overall inflation concerns. One notable position this week involves buying SOFR call options, betting the Fed will pivot to cutting rates by year-end rather than raising them.
The New York Fed President stated that he expects declining energy prices to help pull down overall inflation in the coming months, reiterating that current monetary policy is in a good place. He expressed slightly more optimism about the near-term inflation outlook due to anticipated energy price decreases and noted that the labor market is stabilizing while economic growth remains solid. He also highlighted a strong consensus among FOMC members to remove forward guidance on the future rate path from their post-meeting statement.
Individual Stock Movements
US technology stocks are extending their pre-market declines. Among memory chip makers, SanDisk (SNDK) is down over 5%, while Western Digital (WDC) and Micron Technology (MU) have fallen more than 4%. Seagate Technology (STX) is down over 3%.
In the optical communications sector, Astera Labs (ALAB), AXT Inc (AXTI), and Credo Technology (CRDO) are all down more than 4%. Coherent (COHR), Marvell Technology (MRVL), and Corning (GLW) have declined over 3%. Nokia (NOK), Lumentum (LITE), and Tower Semiconductor (TSEM) are down more than 2%.
Other major tech names also trading lower include Intel (INTC), Advanced Micro Devices (AMD), and Oracle (ORCL), all down over 2%. Qualcomm (QCOM), ASML (ASML), Meta Platforms (META), Amazon (AMZN), Nvidia (NVDA), and Alphabet (GOOGL) are all down nearly 2%.
Notable Corporate Updates
AI search leader Perplexity AI has confirmed plans to extensively use Nvidia's (NVDA) data center central processing unit, the Vera CPU. This move sees the AI chip giant expanding its efforts to capture share in the broader computing market, challenging the entrenched dominance of Intel (INTC) and AMD (AMD) in x86 server CPUs. Nvidia management has previously stated it expects the Vera CPU product line to generate approximately $20 billion in sales by the end of its fiscal year, representing a more general-purpose computing chip compared to its dedicated AI GPUs.
Apple (AAPL) announced details of its multi-year agreement with Broadcom (AVGO), valued at over $30 billion. The companies will co-design and produce custom chip components and advanced wireless connectivity technologies for multiple Apple products. Under the deal, Broadcom will manufacture over 15 billion chips in the US and invest $1.5 billion to expand and upgrade capacity at its Fort Collins, Colorado facility. A regulatory filing confirmed the technical collaboration is extended to 2031.
Exxon Mobil (XOM) provided a preview of its second-quarter earnings, indicating a profit surge of nearly $4 billion driven by higher oil prices amid Middle East conflicts. The company stated that strong crude markets contributed a $3.7 billion profit increase, with refining and chemicals adding another $3.3 billion. These gains were partially offset by roughly $1.2 billion in losses related to production disruptions in the Middle East. The company also expects about $2.6 billion in profit from derivative positions linked to physical cargo delivery.
A key global iron ore export hub faces potential disruption. Unionized workers at BHP Group's (BHP) Port Hedland iron ore terminal in Western Australia are set to hold an eight-hour strike on July 16th. The industrial action, involving operators and maintenance staff represented by the Maritime Union of Australia, escalates tensions and could risk some iron ore supply. The union stated employees are seeking a new agreement that recognizes their skills, tough working conditions, and significant personal costs. A BHP spokesperson said the company remains focused on reaching a fair, competitive, and reasonable agreement.
Upcoming Earnings
Corporate earnings scheduled for release on Thursday before the market opens include PepsiCo (PEP).
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