Stock futures fell sharply on Tuesday, June 23, with contracts tied to the tech-heavy Nasdaq dropping 2% and leading losses across Wall Street as investors grew increasingly worried about looming interest rate increases and the mounting costs of debt-fueled artificial intelligence spending.
The turbulence was not limited to U.S. markets. Stocks across Europe and Asia also came under pressure, continuing a global selloff that began on Wall Street the previous session. Crude oil and precious metals declined as well.
At 3:33 a.m. Eastern Time, Dow E-mini futures were down 372 points, or 0.71%. S&P 500 E-mini contracts fell 101.25 points, or 1.34%, while Nasdaq 100 E-mini futures dropped 693.25 points, or 2.25%.
According to the CME Group’s FedWatch Tool, traders now anticipate the Federal Reserve will raise borrowing costs by a combined 50 basis points before the end of December — a significant shift from expectations of just a single 25 basis point increase two weeks ago. The more aggressive outlook reflects investor expectations of tighter monetary policy under new Fed Chair Kevin Warsh.
The yield on the 2-year Treasury note — a short-term government bond — dipped roughly 4 basis points to 4.19%, pulling back after reaching a four-month high on Monday.
Concerns about inflated valuations in AI-related stocks have been building following a strong rally earlier this quarter that came in the wake of a Middle East ceasefire. Analysts suggest the weakness in AI stocks may continue as high borrowing costs make large-scale AI investment more expensive to sustain.
Semiconductor stocks had bucked the trend on Monday, with the Philadelphia SE Semiconductor Index reaching a record high. Investors will be watching results from Micron on Wednesday for signals about the direction of memory and AI chip demand.
Elon Musk’s SpaceX became the latest major company to tap the bond market, doing so despite recording net losses the prior year and following a blockbuster initial public offering earlier this month. SpaceX shares lost 16% on Monday, with stocks of Alphabet, Meta, Microsoft, and Amazon.com also falling sharply.
Meanwhile, investors are closely monitoring events in the Middle East after the United States granted a 60-day sanctions waiver to Iran following the first round of talks under a developing peace agreement. President Donald Trump stated he will “do what I have to do” if Iran fails to honor its commitments under the deal.
Later Tuesday, markets will focus on a set of private surveys measuring business activity for June. The week’s bigger event comes Friday with the release of the Personal Consumption Expenditures Index — the Federal Reserve’s preferred inflation gauge. Economists are forecasting the index to come in at 4.1%, more than double the central bank’s 2% target.
