Middle East out of control, U.S. stocks "change color"! Can the seven tech giants still stay steady?

At the beginning of March, the US and Israel launched a military attack on Iran, triggering a new wave of global risk aversion sentiment, and causing sharp turbulence in financial markets. The market’s expectation that the conflict would end shortly proved wrong, and the conflict has introduced uncertainty impacts on the international order, energy markets, inflation, and monetary policy. Asia-Pacific markets led the decline, followed by developed economies in Europe and America, with global stock markets plunging.

For the US stock market, although technology stocks have provided strong support, there are concerns about over-investment in AI and disproportionate application penetration, as well as impacts on the employment market, which pose adjustment risks for tech stocks. After the Middle East conflict erupted, US stocks faced shocks from rising inflation and the Federal Reserve being forced to tighten monetary policy. Coupled with economic divergence and debt pressures in the US, the risk of sharp adjustments in US stocks has increased.

Three Major Impacts of the Middle East Conflict

On February 28, the US and Israel launched a large-scale joint military strike on Iran. Trump explicitly declared that the goal of this operation was to overthrow the Iranian regime. Iran responded with missile and drone attacks on Israel, sharply escalating the situation in the Middle East. The risk of regional spillover triggered high market vigilance.

On March 4, as the conflict continued to escalate, after the US and Israel carried out military strikes on Iran, key targets such as military facilities were also hit in succession. The Trump administration responded with a tough stance. Currently, the Middle East conflict seems to be out of control, and the market’s previous expectation that the conflict would end soon has been disappointed.

For the global economy, the US and Israel’s military actions against Iran will bring three impacts.

First, the international order will be further disrupted, leading to increased polarization and decreased trade efficiency, which will once again reduce the contribution of global trade to economic growth. In the short term, the closure of the Strait of Hormuz has caused shipping indices and oil tanker freight rates to soar. For example, in container shipping, Maersk, Mediterranean Shipping, Hapag-Lloyd, and CMA CGM have all suspended passage through the Strait of Hormuz amid deteriorating security. Currently, about 100 container ships are stranded near the Strait, accounting for roughly 10% of global capacity. After the Strait’s closure, containers headed for Europe may be rerouted via the Cape of Good Hope, delaying voyages by 10-15 days, or alternative routes such as the Red Sea and land transport through Saudi Arabia may be used, increasing fuel costs by over 50%. According to the World Bank, the share of global merchandise trade in global GDP is projected to fall to 43.9% by 2025, and possibly further to around 42% in 2026, down from a peak of 49.6% in 2011.

Second, energy prices will rise significantly. As the conflict in the Middle East escalates, international crude oil and natural gas prices surge. Oil production in Iran, which produces about 3.3 million barrels per day and exports nearly 2 million barrels, roughly 2% of global consumption, will be affected in the short term. Daily oil transportation through the Strait of Hormuz is about 15-18 million barrels, accounting for roughly 30% of global seaborne oil trade. If the Strait becomes impassable, a supply gap of 2-3 million barrels per day could emerge globally. Additionally, with the Strait closed, oil tankers will have to reroute around the Cape of Good Hope, significantly increasing transportation costs, which has contributed to the recent surge in tanker freight rates. In the medium term, oil prices will depend on supply-demand fundamentals, the course of the conflict, and US policies, with multiple possible trajectories. The longer the conflict persists, the more sustained the rise in oil prices.

Third, the surge in oil prices will push up inflation levels in Europe, America, and globally. According to the Federal Reserve’s February 18 FOMC minutes, the threshold for rate cuts has been raised, with several members explicitly supporting the inclusion of a dual policy stance in the statement — the first such mention since the current easing cycle began. The rise in oil prices driven by Middle East geopolitical risks and increased trade supply chain costs has further heightened US inflation uncertainty. Market expectations for rate cuts by the Fed this year have sharply diminished, with the first cut now fully priced in for September. As a result, on March 3, the US Treasury market experienced its largest single-day sell-off since April last year. The 10-year Treasury yield briefly declined early in the session but then surged by 10 basis points from the daily low, returning above 4.0%. Rising US interest rates not only impact corporate profits of US-listed companies but also suppress stock market returns.

Figure: Comparison of S&P 500 Index and Real US Dollar Interest Rate Trends

Short-term Diminished Support from AI and Tech Sectors

Previously, the US stock market maintained strength under pressures such as tariff impacts, slowing economic growth, and cooling employment markets, mainly driven by the technology sector. However, since February 2026, concerns have grown that large-scale investments in AI and related fields are “money-consuming beasts,” with application penetration insufficient and impacts on employment becoming apparent. This suggests that even if AI can boost productivity, it may be difficult to translate into increased household income and consumption.

Since the rise of OpenAI in 2022, the focus of AI industry competition has been on large language models and data centers. Tech giants have significantly increased capital expenditure, but AI applications lag behind expectations, with many envisioned scenarios remaining unrealized. Amazon, Alphabet, Microsoft, and Meta have all seen profit growth rates of at least 14%, but market worries center on their combined $660 billion in investments this year, which has led to sharp stock price adjustments. Aside from Apple’s relatively lagging position, all four giants are focused on an “arms race” in AI investment this year.

AI mainly divides into two major areas: one is hardware, involving core companies in the upstream AI supply chain serving data centers, computing power centers, and large models, including TSMC, Nvidia, Samsung, and SK Hynix, with Samsung and SK Hynix mainly focusing on storage. The other is software, or application ecosystems, which, although beginning to penetrate some industries, have yet to generate output proportional to the input.

Currently, companies with capital and resource advantages are poised to dominate AI competition, but even industry leaders are uncertain whether they have chosen the correct development path. Semiconductor firms face strategic dilemmas: on one hand, they must continue investing in cutting-edge R&D; on the other, rapid market structural changes may make the value of technological advantages unpredictable.

In summary, the Middle East conflict appears to directly impact global energy supply and shipping systems, but more deeply erodes the international order, turning what was once a relatively stable environment into a highly unstable one. International financial capital’s risk aversion may become the norm. For the US, domestic K-shaped growth, social polarization, rising energy costs fueling inflation, soaring military spending increasing debt pressures, and the difficulty of returning to an easing monetary policy are key issues. The massive technological investments in AI face output uncertainties, and US stocks are expected to experience high volatility. Investors should hedge risks, possibly using CME Micro E-mini S&P 500 futures contracts to offset large stock market adjustments.

In 2019, CME launched four smaller, more suitable stock index futures contracts for small and medium investors — the Micro E-mini series, including: Micro E-mini S&P 500 (code: MES), Micro E-mini Nasdaq 100 (code: MNQ), Micro E-mini Dow (code: MYM), and Micro E-mini Russell 2000 (code: M2K). These Micro E-mini contracts have lower value and margin requirements, only one-tenth of the regular E-mini series, making them very suitable for small and individual investors.