By Shashwat Chauhan and Shristi Achar A

(Reuters) -U.S. stock index futures fell on Friday as investors turned risk-averse following reports of an escalation in the Middle East conflict, while Netflix (NASDAQ:) dropped after the company forecast current-quarter revenue below estimates.

Israel launched an attack on Iranian soil on Friday, sources said, in the latest tit-for-tat exchange between the two arch foes, whose decades of shadow war broke out into the open and threatened to drag the region deeper into conflict.

The , also known as Wall Street's "fear gauge", was up 1.42 points at 19.42, its highest level in more than five months.

"One mistake that causes casualties or hits an unexpected target could trigger an escalation in reprisals and a deeper, more dangerous situation in the Middle East," Kathleen Brooks, research director at XTB, said in a note.

"This is why volatility is likely to stick around, especially as it comes at a delicate time for financial markets as they recalibrate expectations for interest rate cuts."

On the earnings front, Netflix slumped 6.4% in premarket trading following the streaming video pioneer's lackluster second-quarter forecast.

Shares of other streaming services providers such as Walt (NYSE:) and (NASDAQ:) dropped 1.2% and 1.5%, respectively.

At 6:55 a.m. ET, were down 126 points, or 0.33%, were down 23.25 points, or 0.46%, and were down 124.25 points, or 0.71%.

The and the Nasdaq closed lower for the fifth straight session on Thursday, as economic data and comments from Fed officials suggested that the U.S. central bank was unlikely to cut interest rates in the near future.

Federal Reserve policymakers have coalesced around the idea of keeping borrowing costs where they are until perhaps well into the year, given slow and bumpy progress on inflation, and a still-strong U.S. economy.

Equities were rattled this week as investors readjusted their expectations over by how much the Fed would cut rates this year, with both the S&P 500 and the blue-chip Dow poised for a third weekly decline, while the Nasdaq was set for its fourth consecutive weekly loss, if current trend holds.

Money markets are now pricing in about 41 basis points (bps) of cuts from the central bank, down from around 150 bps seen at the beginning of 2024, according to LSEG data.

Most megacap growth stocks weighed, with Alphabet (O:), Nvidia (NASDAQ:), Meta Platforms (NASDAQ:) and Tesla (NASDAQ:) down between 0.7% and 2.1%.

Shares of Paramount Global jumped 10.3% after a person familiar with the matter told Reuters that (NYSE:) Pictures Entertainment and Apollo Global Management (NYSE:) are discussing making a joint bid for the company.