Tech sector faces 2 headwinds from Iran war and Bitcoin pressure

The tech sector's AI memory trade is buckling under the dual weight of an escalating U.S.-Iran conflict and Bitcoin-driven capital rotation, with the Philadelphia Semiconductor Index swinging 5.6% higher Monday after a 4% Nasdaq rout Friday.

"There is a lot of volatility happening within the cohort, especially within the AI memory trade," Nathan Peterson, senior investment strategist at Charles Schwab, said.

The S&P 500 added 0.3% to close at 7,404.73 Monday, recovering from its worst session of the year Friday when it fell nearly 3%. The Nasdaq Composite advanced 0.9% to 25,929.66 after cratering more than 4% in its steepest one-day decline in over a year. The Dow Jones Industrial Average slipped 0.2% to 50,785.52. Brent crude futures rose 1.4% to $94.40 a barrel after touching $98.07 earlier in the session, as the shuttering of the Strait of Hormuz — which handles 21% of global oil trade — triggered the biggest supply disruption in history.

The stakes are rising for a tech sector that had ridden a nine-week winning streak — its longest since December 2023 — before Friday's selloff. With the May consumer price index due Wednesday and producer price index on Thursday, traders are bracing for inflation data that could confirm whether the energy shock from the Middle East is feeding into core prices. Deutsche Bank economists expect headline CPI to rise sharply on a 6.8% seasonal increase in petrol prices, with core PCE inflation tracking at roughly 3.4% year on year.

Iran-Israel Truce Holds, But Oil Risk Premium Persists

Over the weekend, Iran and Israel exchanged direct strikes for the first time since an April ceasefire, with Israel hitting Beirut and Tehran responding before President Donald Trump intervened on Truth Social to call for an immediate halt. Iran's armed forces declared an end to military operations, and Israeli Prime Minister Benjamin Netanyahu said Israel would stop attacks "for now" while vowing to respond with "great force" if provoked again. Brent crude remains significantly above pre-war levels of around $70 a barrel, and the continued closure of the Strait of Hormuz has created an inflationary shock that central banks globally are now monitoring.

Bank of Japan Governor Kazuo Ueda warned this week that inflation could overshoot targets on the energy shock from the Iran war, raising the possibility of a rate hike when the BOJ meets later this month. The last time the S&P 500 suffered a comparable single-day decline — a 3% drop — was in September 2024 after a hotter-than-expected CPI print, and the index recovered those losses within 12 trading sessions.

Bitcoin Adds a Second Layer of Pressure

Beyond geopolitics, Peterson flagged Bitcoin-related pressures as an additional source of tech sector volatility. The AI memory trade — which includes names like Micron Technology and Samsung Electronics — has been a primary driver of semiconductor gains this year, but capital rotation into crypto assets is creating cross-currents. South Korea's KOSPI, heavily weighted toward memory chip makers, fell as much as 2% Thursday as Samsung and SK Hynix retreated from record highs. Broadcom slid 12% in aftermarket trade after posting mixed quarterly revenue, weighing on chip stocks globally.

Carol Schleif, chief market strategist at BMO Wealth Management, described Friday's selloff as "a healthy reset for stocks" rather than the start of a deeper decline, noting that "fundamentals continue to strengthen from better-than-expected earnings and economic data."

Whether this recovery follows a similar path to the September 2024 rebound depends on whether this week's inflation data confirms that the Iran-driven energy shock is transitory or becoming embedded in core prices.

This article is for informational purposes only and does not constitute investment advice.