US Stock Futures Slide as Iran War Kills Rate-Cut Hopes

U.S. stock index futures continued to fall on Monday morning, with S&P 500 futures down 0.63%, Nasdaq 100 futures down 0.72%, and Dow E-minis down 230 points. This was because President Trump's 48-hour ultimatum to Iran added more risk of escalation to a market that had already lost four weeks in a row. The CBOE Volatility Index, which is meant to measure how scared people are on Wall Street, hit a two-week high of 30.15, going up 3.37 points on the day.

The war in Iran has completely changed the story about interest rates that supported the prices of stocks in 2026, and the market is still figuring out how long this repricing needs to last.

From Two Cuts to Zero: How the Rate Outlook Collapsed

There were already two Federal Reserve rate cuts planned for the year when the war between the US and Iran started in late February. That assumption is no longer there at all. The CME FedWatch Tool now predicts that there will be no rate cuts in 2026 and more than a 50% chance of a rate hike in the second half of the year. This is a big change from where positions were just a few weeks ago.

The Fed's meeting last week sped up the change. Officials predicted higher inflation and said there would only be one rate cut, at most, in 2026. They spoke in a bullish way that confirmed what the oil markets had been saying for weeks. On Monday, U.S. crude futures rose back above $100 a barrel, which kept inflation caused by energy in the spotlight.

 "If oil and gas prices stay at current levels for the rest of the year, central banks will have to weigh the pros and cons of rate cuts versus hikes," said Ed Yardeni of Yardeni Research. That he said, "If the war ends by June, there is little reason for central banks to hike" makes it sound like the opposite is also true, and markets are starting to price it that way.

The Damage Across Indexes

The real story is shown by how big the selloff is. In the last 30 days, all three of the big indexes have gone down by between 4% and 7%. The S&P 500 fell 1.5% on Friday alone, and the Nasdaq saw its biggest weekly drop since early February. The Nasdaq is a technology-heavy index that is very sensitive to rising rate expectations because growth stock prices are based on long-term trends.

The most important technical warning is that the Russell 2000 small-cap index closed on Friday more than 10% below its record high from January 22. This means that the market is now clearly in correction mode. When interest rates go up, small-cap companies are more likely to be affected than larger companies. This makes them the "canary in the coal mine." The Russell futures price dropped another 1.2% on Monday.

Miners of precious metals made things even worse by watching as both gold and silver prices fell at the same time. Newmont Mining fell 6.1%, Barrick Mining fell 5.4%, and Endeavour Silver fell 7.8%. This is a warning that fear of rate hikes is affecting even traditional inflation hedges right now.

The only thing that looks good is energy stocks. Occidental Petroleum went up 1.5%, Exxon Mobil went up about 1%, and Chevron went up about 1%. The market's main trade changed from rate-sensitive growth to commodity producers directly gaining from the oil shock. This was the clearest sign of this change.

The only planned data releases this coming week are business activity surveys and consumer sentiment readings. This means that geopolitical news will continue to drive price action. There are three things that will affect whether the four-week drawdown gets worse or stays the same: whether Trump's 48-hour ultimatum to Iran leads to any diplomatic progress, whether crude stays above or breaks below $100, and whether Fed speakers strengthen or weaken the hawkish pivot signaled at last week's meeting.

Until at least one of those changes for the better, the easiest way for U.S. stocks to go is down, with small-caps and rate-sensitive sectors feeling the most pressure.