Headline CPI rose 4.2% year-on-year in May, while core CPI increased 2.9%, both matching market expectations. The most closely watched metric, core CPI month-on-month growth, came in at 0.2%, below the expected 0.3%, suggesting that underlying inflationary pressures are showing early signs of moderation.

Before the data release, the CME FedWatch Tool indicated that markets had already priced in roughly a 70% probability of a rate hike before year-end. Following the report, traders reduced some of their previously aggressive rate-hike bets. Financial markets interpreted the CPI release as “not making the Fed more hawkish.”

However, “moderate” does not mean “risk-free.” The inflationary pressure resulting from higher oil prices has not yet been fully reflected in core inflation readings, and developments in the Middle East are simultaneously increasing that risk.

Escalation in the Middle East

On June 10, the United States and Iran engaged in their largest military confrontation since the ceasefire reached in April.

US forces launched airstrikes against multiple Iranian ports, while tensions surrounding the Strait of Hormuz left more than 160 oil tankers stranded.

Following the news, international oil prices surged sharply. Both WTI and Brent crude briefly climbed above US$90 per barrel, posting gains of more than 2%.

More important than the current oil price itself is the shift in market expectations created by this escalation.

Just one day earlier, President Trump had stated that the United States and Iran could reach an agreement within two to three days and that the Strait of Hormuz would reopen immediately following a deal.

However, on June 10, his tone shifted dramatically toward “there must be consequences.”

Markets interpreted this change as evidence that the boundaries between red lines and negotiation positions remain highly unpredictable.

A volatile policy signal creates a geopolitical uncertainty premium that may prove more persistent than the actual impact of any supply disruption.

Markets do not necessarily fear war itself; they fear uncertainty regarding whether conflict will occur and how it might unfold.

Gold Falls

Spot gold broke below the US$4,200 level for the first time since March 23, with intraday losses exceeding 2.6%.

The logic behind the decline is relatively straightforward.

The most important macroeconomic event of the day was the CPI release. Prior to the report, markets had already fully priced in a 4.2% inflation reading.

Once the data matched expectations, gold lost one of its key bullish narratives: the possibility of inflation significantly exceeding forecasts.

Short-term bullish traders therefore chose to lock in profits and exit positions.

Some market analysts noted that after CPI came in precisely at 4.2%, gold initially experienced a brief US$40 spike before quickly reversing and falling sharply.

A second source of pressure came from evolving Federal Reserve expectations.

Inflation remains elevated but not out of control, and futures markets continue to assign a high probability to either no rate cuts this year or even an additional rate hike.

In a high-interest-rate environment, non-yielding assets such as gold become less attractive to hold.

As a result, even rising geopolitical tensions have struggled to overcome the structural headwind created by higher interest rates.

On the same day, Citi’s commodities research team lowered its three-month gold price target from US$4,300 per ounce to US$4,000 per ounce.

Technology Stocks Sell Off

The Philadelphia Semiconductor Index plunged more than 8% intraday.

The “Magnificent Seven” technology stocks have now underperformed the broader market for seven consecutive trading sessions, declining nearly 8% over that period.

The sector is currently facing at least three to four layers of pressure.

First Layer: Valuation Pressure

After the explosive rally in AI-related stocks during the first half of 2026, positioning has become extremely crowded.

Following Broadcom’s disappointing earnings guidance, investor sensitivity across the semiconductor sector intensified significantly.

Every intraday rebound has been met with fresh selling pressure.

At one point, the semiconductor index fell as much as 8.6%, with some market participants describing the move as “near panic selling.”

When crowded trades encounter even minor external disruptions, the pressure for a reversal can become magnified.

Second Layer: Capital Rotation Expectations

SpaceX is expected to go public this Friday.

Market concerns that the IPO could absorb liquidity have risen sharply.

Capital is increasingly flowing out of richly valued AI leaders and semiconductor stocks and into sectors such as industrials, materials, and consumer discretionary names, which offer greater economic sensitivity and defensive characteristics.

This helps explain why the Dow Jones Industrial Average managed to rise despite heavy losses in technology stocks.

The money is not leaving the equity market—it is simply being reallocated.

Third Layer: Macro Spillover Effects

Escalating geopolitical tensions are driving oil prices higher and increasing uncertainty around inflation.

If oil prices remain above US$90 per barrel for an extended period, businesses will continue facing higher energy and logistics costs.

AI and semiconductor companies are not immune to these pressures.

Reports from institutions including Bank of America indicate that rising raw-material and energy costs within the AI supply chain are already having a tangible impact on profit margins for chip manufacturers and computing infrastructure providers.

From today’s market action, one conclusion becomes clear:

In a highly crowded market that depends heavily on certainty-driven narratives, any disruption—whether from a sudden spike in oil prices or shifts in capital allocation—can quickly trigger powerful chain