US equities pull back as UAE strike lifts risks

Oil surge fuels inflation and Fed rate fears

United States (US) equity markets pulled back on Friday as concerns over the Middle East conflict fuelled worries that higher energy costs and robust economic data could keep inflation sticky and force the Federal Reserve (Fed) to raise rates before year end. For the week, the S&P 500  still managed its seventh straight weekly gain, its longest streak since late 2023, though both the Nasdaq 100 and Dow Jones finished the week marginally lower.

West Texas Intermediate (WTI) crude oil for July finished 5.87% higher last week at $101.02. While last week’s Trump – Xi meeting offered a glimmer of optimism, China has since shown little appetite for helping to reopen the Strait of Hormuz – and why would it? President Trump has been Beijing’s chief antagonist for more than a decade, and with ample strategic reserves on hand, China can afford to let the US sit in an uncomfortable spot of its own making for a little longer.

Drone strike raises stakes in the Gulf

Further complicating the US president’s ability to defuse the situation were fresh drone attacks on the United Arab Emirates (UAE) and Saudi Arabia overnight. While Saudi Arabia successfully intercepted all three drones entering its airspace, one that penetrated UAE airspace from the west struck an external electrical generator at the Barakah nuclear power plant.

Gulf states have likely been adapting and improving their air defences during the five‑week ceasefire, possibly incorporating Ukrainian anti‑drone systems, and until this weekend’s strike these appeared to be working well. However, targeting a nuclear facility suggests Iran has also adapted its tactics, achieving some success by shifting the direction and origin of this latest assault.

These attacks serve as a pointed warning: any renewed US or Israeli strikes on Iran could quickly trigger further proxy assaults on Gulf energy and critical infrastructure.

Markets turn to data and earnings

Beyond developments in the Middle East, investor attention this week will turn to the Federal Open Market Committee (FOMC) meeting minutes and flash purchasing managers’ indices (PMIs), previewed below. Meanwhile, the US first‑quarter (Q1) 2026 earnings season rolls on, with a solid lineup of reports from major technology, retail and consumer names.

Highlights include Home Depot, Target, Lowe’s and Walmart, with chip giant NVIDIA the clear standout on Wednesday evening. 

US flash PMIs

Date: Thursday, 21 May at 11.45pm AEST

For April, the S&P Global US flash composite PMI rose to 51.7 from 50.3 in March. Drilling into the details, the manufacturing PMI rose to 54.5 from 52.3, its strongest reading since May 2022. New orders rose at the fastest pace in four years, while output accelerated sharply on stockpiling efforts to mitigate the impact of the energy shock.

Meanwhile, the services PMI recovered to 51.0 from the three‑year low of 49.8, though new business intake fell for the first time in two years on war‑related uncertainty and tariff concerns. Input price pressures remained elevated across both sectors due to higher energy and staffing costs.

The May figures will be closely watched, particularly after last week’s hotter‑than‑expected inflation data boosted expectations that the Fed’s next move will be a rate hike. The consensus forecast is for the manufacturing reading to ease to 53.6 and for the services PMI to rise to 51.3.

The US interest rates market begins the week pricing in around 15 basis points (bp) of Fed hikes for the remainder of 2026, with a full 25 bp hike almost fully priced for March 2027.

US composite PMI chart

Nasdaq 100 technical analysis

The Nasdaq 100 began a correction after hitting its late‑October record high of 26,182, before bottoming at the late‑March low of 22,841. From those lows, the index launched a powerful rally that has now brought it within roughly 1% of the 30,000 psychological milestone – a level first flagged on 20 April, well ahead of the original year‑end target.

Last week, however, the index printed a clear ‘loss of momentum’ weekly candle. The same pattern appeared across the S&P 500 and Dow Jones, signalling the strong uptrend is pausing and a period of consolidation or modest pullback may now be underway. How long and how deep this pullback develops will likely hinge heavily on NVIDIA’s earnings report later this week.

A decisive break and close above last week’s high of 29,678 would reaffirm bullish control and open the door to fresh all‑time highs, potentially targeting 32,500. However, while the index remains below last week’s high, scope remains for a corrective pullback, with 27,000 acting as a logical retest zone to rebuild energy for another leg higher.

Nasdaq 100 daily candlestick chart

Dow Jones technical analysis

The Dow Jones hit a fresh all‑time high of 50,512 in mid‑February following a strong 38% rally from the Liberation Day lows. It then corrected back to support near 45,000, before launching another solid recovery that carried the index back to 50,200, just short of this year’s earlier record high.

Friday night’s retreat from the 50,200 level has increased the risk the Dow has formed a double top in the 50,200 – 50,500 zone. This is compounded by intramarket divergence, with the Nasdaq 100 and S&P 500 making new highs while the Dow Jones has failed to do so – a classic sign of internal weakness and lack of broad participation, also referred to as a non‑confirmation.

A decisive break and close above 50,200 – 50,600 would be needed to open the door to a further extension toward the 52,500 region. Until then, risks are building for a corrective pullback, initially toward support at 48,800 – 48,500.

Dow Jones daily candlestick chart

• _{Source: TradingView. The figures stated are as of 18 May 2026. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}