Oil prices surged more than 5% on Wednesday, while global equities and bond prices fell. Investors fled risk assets after US President Donald Trump stated that the memorandum of understanding signed with Iran, aimed at ending the Gulf conflict, was "over."
As of the time of writing, Dow Jones futures were down 1.15%, S&P 500 futures were down 0.92%, and Nasdaq futures were down 1.38%.
Flight from Risk Assets
The escalation on Wednesday is prompting a withdrawal of capital from risk assets. Previously, the April ceasefire and the subsequent signing of a memorandum of understanding between the US and Iran had led investors to believe both sides wished to avoid a prolonged conflict. Since late March, stocks had been on a sustained rise, with a strong earnings season bolstering market confidence in the economic potential of artificial intelligence.
US stocks are expected to extend Tuesday's declines; Tuesday's drop was primarily driven by a sell-off in chipmakers amid concerns over whether massive AI investments could support lofty valuations.
The VIX volatility index jumped nearly 13%, marking its largest single-day gain in over a month, though it remains below its March peak.
Recently, US stock markets have been volatile. The market has been swinging between forces of bargain-hunting on dips and risk reduction by investors questioning how much longer the rally in semiconductor and other AI-related stocks can last.
Major European stock indices were down across the board in early trading. Banking stocks and energy-intensive sectors weakened, with the pan-European Stoxx 600 index falling 0.7%.
Trump's "Ceasefire is Over" Remark Shakes Markets
Speaking before attending the NATO summit in Ankara, Turkey, Trump added that he did not want further engagement with Tehran. He said, "In my view, dealing with them is just a waste of time."
Brent crude oil rose 6.4%, trading around $79, its highest level since June 22nd. This followed Trump's statement at the NATO annual summit in Ankara that the ceasefire was "over" and called it a "waste of time."
Violeta Todorova, Senior Research Analyst at Leverage Shares, said Trump's statement "marks the most serious breach to date of an agreement that has been fraying for weeks."
She said, "The market had been treating the June MOU as a lasting cooling arrangement. That complacency now looks fragile."
Chris Beauchamp, Chief Market Strategist at IG, said, "This is clearly not what the market wanted to see, and it has really hit sentiment hard."
Khoon Goh, Head of Asia Research at ANZ in Singapore, said, "The most critical question is really whether the Strait of Hormuz remains open, whether we still see ships passing through, and whether oil can continue to flow."
Supply Concerns Rekindled
Trump's remarks came shortly after the US launched a new round of strikes against Iran and revoked waivers that had allowed Iran to sell oil. However, despite little progress in peace talks, Trump had not shown a clear willingness to return to full-scale war in recent weeks. He stated he would not stop negotiators from continuing to engage with Iran, though he expressed pessimism about the strategy.
Joachim Klement, Head of Strategy at Panmure Liberum, said, "Trump is known for being mercurial, and we expect the current escalation to be temporary in nature until both sides return to the negotiating table."
He added, "There is no incentive to rekindle the war ahead of the November midterm elections."
Analysts at ING said, "The renewed escalation in the Persian Gulf has reignited supply concerns." They also noted, "The curve structure has also strengthened, with the front-end returning to backwardation after recently turning into contango due to increased Persian Gulf supply."
Skylar Montgomery Koning, Bloomberg Macro Strategist, said, "Oil prices would need to move much more significantly to overwhelm other factors influencing equity performance. An escalation in US-Iran tensions represents a downside risk, but is unlikely to materially impact equities unless commodity prices see a much larger increase."
South Korean Market Enters Technical Bear Territory
Earlier on Wednesday, related trading was in focus in South Korea. The KOSPI index fell 5.35%, entering a technical bear market, having fallen 23% from its June high. Memory chipmakers Samsung Electronics and SK Hynix extended recent declines, closing down 6.25% and 5.7%, respectively. Having been the best-performing major benchmark this year, the index has recently been hit by severe volatility. A rotation in tech stocks has intensified, with investors pulling out of semiconductor shares and moving towards tech assets with more attractive valuations.
In Hong Kong, Alibaba Group shares rose 12%, with the tech sector broadly stronger. The Hang Seng Tech Index gained 5.2%. The broader Hang Seng Index rose 3%. Jialong Shi of Nomura said the broad-based rise in China's internet sector was likely due to a rebalancing of funds from the outperforming AI hardware sector into lagging sectors.
Michael Field, Chief Equity Strategist at Morningstar, said, "A confluence of negative newsflow is dragging the market lower, and with no major earnings releases in the coming days to change that trend, the market seems to be struggling to catch a break."
Focus on Fed Minutes
While oil prices remain well below the highs above $120 per barrel seen during the most intense fighting, they are high enough to reintroduce inflation risk into the bond market, especially after months of conflict have depleted global oil inventories.
The benchmark 10-year US Treasury yield rose for a seventh consecutive session, reaching a one-month high of 4.56%.
In Europe, 10-year German and Italian government bond yields posted their largest gains in a month, also rising to one-month highs of 3.06% and 3.9%, respectively. The UK 10-year gilt yield jumped 10 basis points to 4.94%, its highest level in nearly a month. European bonds fell as traders increased bets that central banks will have no choice but to raise interest rates this year.
The minutes from the Federal Reserve's June meeting will be the most important macro event of the trading day. Their importance has increased further after Fed Chair Kevin Warsh shortened the policy statement and declined to participate in rate projections.
Andrew Sacher, Bloomberg Economist, said the minutes "could bring back the hawkishness that has faded somewhat since the jobs report, as they will reflect the hawkish dot plot released at that time."
He said, "We expect the minutes to emphasize concerns about inflation above target, and officials' desire to retain some tightening space."
Steve Englander of Standard Chartered said in a report that Warsh explicitly avoided giving policy guidance, so he seems unlikely to allow such guidance to be released via the minutes. He said, "Avoiding any discussion of rate hikes could be interpreted by the market as a reluctance to act."
European Natural Gas Rises
European natural gas prices rose above €48 per megawatt-hour. In early trading, the benchmark Dutch TTF gas contract rose 2.9% to €48.12 per megawatt-hour, bringing its weekly gain to over 10%. The latest US-Iran escalation has heightened concerns about fuel supplies ahead of Europe's heating season.
Ewa Manthey and Warren Patterson of ING said, "The European gas market continues to look tight as we head into the injection season."
Currently, EU gas storage is 50% full, significantly below the five-year average of 66%.
Gold Falls Below $4,100
Gold prices fell sharply, now breaking below the $4,100 support level. Investors are awaiting the release of the Fed meeting minutes for more clues on the monetary policy outlook.
Analysts at ING said, "Gold movements continue to be primarily driven by changes in US rate expectations."
Meanwhile, ongoing gold purchases by China's central bank, coupled with continued reserve diversification by global central banks, are providing underlying support for the gold price.
As AI semiconductors correct, Wall Street strategy shifts towards "low-pressure quality stocks."
Wall Street giant Jefferies advises investors to hold high-quality stocks with low profit-taking pressure and low crowding to weather a potential major summer tech correction—market volatility is rising significantly amid the unwinding and deleveraging of crowded AI semiconductor trades related to the AI investment boom and growing concerns over AI monetization paths.
Jefferies' latest view aligns with that of top strategists like Morgan Stanley's Wilson, suggesting a phased reduction in exposure from high-crowding, high-leverage, high-beta AI computing power trades, and a shift towards high-quality, low-momentum stocks with ample cash flow, as well as cyclical sectors with strong fundamentals and defensive stocks that have significantly underperformed tech stocks this year.
After an 18% gain this year, has the Nasdaq rally stalled? Prediction platforms show a 50/50 split, with only a 27% probability of breaking 33,000 points this year.
The Nasdaq 100 index has risen about 18% in 2026, but traders on the prediction market platform Kalshi believe the index will not rise much further in the second half of 2026.
Speculators believe the odds are roughly 50/50 that this tech-heavy index will close above 30,000 points in 2026, a threshold it first crossed in late May.
The Nasdaq 100's sharp surge in 2026 occurred after the US stock market bottomed on March 30th, triggered by the US-Iran war.
From then until June 2nd, the index of the 100 largest non-financial stocks on the Nasdaq soared more than 33%, driven by renewed market confidence in the AI trade. But current traders seem to believe this bull run has little momentum left.
Stocks in Focus
Following US President Donald Trump's announcement terminating the US-Iran ceasefire agreement, international crude oil prices surged, boosting energy company stocks. Diamondback Energy rose over 3%; Apache and Occidental Petroleum gained over 2.5%, Chevron rose over 2%, and ExxonMobil advanced 1.5%.
Conversely, rising crude prices significantly impacted travel companies with high fuel cost ratios, with the sector broadly lower. Carnival Corp fell 3.5%, Norwegian Cruise Line dropped 3%; United Airlines also fell 3%, and Delta Air Lines declined nearly 2%.
In Wednesday's pre-market trading, SpaceX bucked the trend, rising nearly 0.5%, a slight rebound from Tuesday's over 6.5% drop. The stock closed below its $150 IPO price on Tuesday.
The memory chip sector continued its sell-off on Wednesday, with stocks across the board weakening. SanDisk fell over 5.5%, Western Digital dropped 5%; Micron Technology slid 4.5%, and Seagate Technology closed down 3.5%.
Goldman Sachs downgraded Bath & Body Works from Neutral to Sell, sending the personal care retailer's stock down over 4%. The bank's analyst stated that the company's aggressive expansion into third-party distribution channels would divert traffic from its own physical stores and erode revenue from its own retail business.
Cosmetics giant Estée Lauder disclosed in a regulatory filing that it increased the total estimated cost of its restructuring plan to $1.75 billion from a previous estimate of $1.55 billion, causing its stock to fall 2%.
Electric vehicle maker Rivian, which on Tuesday posted its largest single-day drop since February 2024, saw its shares fall another nearly 4% on Wednesday. This followed the company's announcement of a secondary offering of 75 million new shares to raise capital, which caused its stock to plunge 18% on Tuesday after the news.
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