US equity futures are pointing to a softer open today, as escalating Middle East tensions and surging oil prices continue to weigh on sentiment, even as the technology-heavy Nasdaq manages to outperform its peers for the week.
As of Friday morning (US time), Nasdaq futures are trading down 0.33% at 606.91, yet the index has managed to eke out a 0.36% gain for the week. This relative strength stands in sharp contrast to the broader market’s performance: the Russell 2000 has tumbled 1.78% over the same period, the S&P 500 has declined 0.7%, and the Dow Jones Industrial Average has suffered the steepest losses, down 2.09%.
Thursday’s session underscored the divergence, with the Dow falling 1.6%, the S&P 500 dropping 0.6%, the Nasdaq slipping just 0.3%, and the Russell 2000 plunging 1.9%. The VIX volatility index has climbed into the 24 range from the high teens, reflecting heightened caution though stopping short of outright panic levels seen during previous crisis periods.
Driving Markets on The Week
The primary catalyst for this week’s market turbulence has been a sharp escalation in US-Israel-Iran tensions, which has sent crude oil prices soaring roughly 20% at their peak. Brent and West Texas Intermediate futures crossed the $79-80 per barrel threshold on Thursday, and have moved above $84 today, marking their highest levels since mid-2022 and registering the largest weekly gain since the Russia-Ukraine conflict in early 2022.
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The oil shock has rippled through equity markets in predictable fashion. Energy stocks, led by names like Chevron, have rallied on the windfall, while airlines, transportation companies, and fuel-intensive industrials have come under pressure on margin compression fears. The broader concern centers on inflation: higher energy costs have pushed Treasury yields up approximately 15-20 basis points over the week, reinforcing expectations that the Federal Reserve will maintain restrictive monetary policy for longer than previously anticipated.
Small-cap stocks have borne the brunt of the selling pressure. The Russell 2000’s nearly 2% weekly decline reflects the double whammy of higher input costs and tighter financial conditions hitting domestically focused companies with less pricing power and more leverage. The Dow’s underperformance similarly stems from its heavy weighting in cyclical, multinational industrials and financials that face both energy cost headwinds and trade policy uncertainty.
Against this backdrop, the Nasdaq’s resilience tells a different story. Several major artificial intelligence and semiconductor companies have delivered bullish guidance that has cushioned the index. Broadcom projected that AI chip revenue could surpass $100 billion next year, sending shares up roughly 5%. Marvell Technology surged approximately 15% in after-hours trading following strong commentary on multi-year AI infrastructure demand. Even Nvidia, despite volatility around reports of halted H200 production for China, has shown relative strength compared to cyclical sectors.
US economic data released this week has presented a mixed picture that, paradoxically, has become a headwind for equity valuations. Initial jobless claims remain low at around 213,000, while fourth-quarter 2025 nonfarm productivity rose 2.8% versus expectations of 1.9%. Challenger job cuts in February dropped to roughly 48,000, less than half of January’s figure. The data points to a still-healthy economy with improving efficiency, but it also removes any near-term catalyst for Fed rate cuts, particularly when layered atop energy-driven inflation concerns.
Moving Ahead
Looking ahead, Friday’s nonfarm payrolls report and retail sales data will provide the next major test of whether the geopolitical shock is beginning to dent real economic activity, although it may be too early. Markets are watching closely for any sign that conflict-related uncertainty is causing businesses to pull back on hiring or consumers to curtail spending.
An additional layer of uncertainty comes from trade policy, with discussions around a potential 15% global US tariff regime adding to the list of concerns for multinational corporations and manufacturers. This policy overhang has disproportionately affected Dow components and small-cap stocks, while providing another reason for markets to favor large-cap technology names perceived as more insulated from blunt trade barriers.
The style rotation that had been favouring value and cyclicals earlier in 2026 has reversed course this week, with quality, profitability, and large-cap growth factors outperforming as markets seek balance-sheet strength and pricing power in an uncertain macro environment. Energy and defence stocks have been relative winners, while financials, transports, and high-leverage small caps have lagged.
