Asian markets opened sharply lower Monday after Iran launched strikes on Israel over the weekend in response to Israeli attacks on Hezbollah targets in Beirut, the latest escalation in a conflict that has kept global markets on edge for months. Oil prices jumped on the news, adding to the pressure on equities already reeling from the prospect of higher U.S. interest rates and growing unease about the trajectory of the artificial-intelligence industry.
South Korea’s KOSPI index fell by nearly 9% at one point, forcing trading to be briefly suspended under exchange circuit-breaker rules. Japan’s Nikkei 225 index was 3% lower. The declines extended a painful period for global equities: the S&P 500 fell 2.64% on Friday, closing the session at 7,584.31, according to FRED data, and has now fallen in recent weeks as a confluence of factors has driven a broad risk-off move across asset classes.
Friday’s drop on Wall Street was triggered by a stronger-than-expected U.S. employment report for May. The Labor Department reported that the U.S. added 172,000 jobs in May, as MSI previously reported. The data led many traders to conclude that the Federal Reserve’s next move on interest rates will be upward rather than downward, reversing expectations that had driven equities higher earlier in the year.
Technology stocks have been under particular pressure in recent days. The sell-off has been fueled by fears that the race to dominate artificial intelligence is becoming a contest of unsustainable capital spending, as major players including ChatGPT and Anthropic prepare to float on public stock markets. The AI sector, a dominant driver of the broader market’s gains in 2025 and early 2026, has seen its leadership role in the rally called into question as investors scrutinize profitability timelines and the massive infrastructure costs required to train and deploy frontier models.
Kyle Rodda, senior financial market analyst at Capital.com, said the geopolitical dimension could deepen the losses. “Things could get a bit hairier today in the markets after a flare-up in geopolitical tensions over the weekend,” Rodda said. “Iran launched strikes on Israel for its attacks on Hezbollah targets in Beirut, leaving a nervous wait for the Israeli response. There is the heightened risk the war escalates again as peace talks between the US and a clearly emboldened Iran stall.”
U.S. household inflation expectations for the year ahead stood at 4.7% on June 8, according to FRED data from the University of Michigan’s Survey of Consumers. The elevated reading suggests that consumers expect inflation to remain well above the Federal Reserve’s 2% target, complicating the central bank’s policy path and adding to the pressure that has pushed equity markets lower.
Oil prices rose on the escalation, extending a trend that has been a persistent feature of markets since hostilities between the U.S. and Iran intensified earlier this year. Higher energy costs feed directly into inflation expectations and consumer spending, compounding the pressure on central banks to maintain or increase interest rates even as economic growth shows signs of slowing.