Markets in brief
Futures tied to the main U.S. equity benchmarks edged up following a fresh policy announcement from the Federal Reserve and a wave of technology sector earnings. By 01:55 ET (05:55 GMT), Dow futures were up by 27 points, or 0.1%, S&P 500 futures rose by 15 points, or 0.2%, and Nasdaq 100 futures gained 133 points, or 0.5%.
That tentative gain came after a session in which the principal U.S. averages had fallen as traders awaited comments from Fed Chair Kevin Warsh on how the central bank intends to manage elevated inflation pressures. A pronounced drop in chipmakers extended through the week, with the Philadelphia Semiconductor Index declining 5.33% on the most recent trading day and falling more than 14% over the prior five sessions. The Nasdaq 100 moved into a correction, conventionally defined as a decline of 10% or more from a recent peak, as investors reassessed the sustainability of heavy investment in artificial intelligence infrastructure such as chips and data centers and weighed signs of mounting Chinese competition in the sector.
Those concerns were tested further after the market close when two of the largest AI-focused megacap companies, Microsoft and Meta Platforms, released quarterly results. The corporate reports arrived against a background of renewed geopolitical tension between the U.S. and Iran. Oil markets reacted, with Brent crude futures last recorded up 1.4% at $92.01 a barrel after a near 7% rise on the prior day.
Fed decision: rates unchanged, divided vote
The Federal Reserve chose to maintain its target range for the policy rate at 3.5% to 3.75% at the conclusion of a two-day meeting, although three officials dissented and voted in favor of a rate increase. Policymakers continue to confront inflation readings that remain well above the Fed's 2% objective, a dynamic the central bank said has been amplified by an energy shock tied to the Iran war. While consumer price data for June came in softer than anticipated, oil prices have been volatile throughout the month as the Middle East conflict has swung between escalatory and de-escalatory phases.
Officials acknowledged that raising rates is one tool to restrain price pressures, but the trade-off is complex in a labor market showing modest hiring and few large-scale layoffs. In his remarks on the policy decision, Warsh said that although officials elected to pause on rates in July, that should not be interpreted as inaction. "There was nothing inertial about our discussions," he said. When asked specifically whether a further rate increase would help tamp down inflation, Warsh cautioned that a rate move is not the only factor. "I wouldn’t say it’s in isolation," he said, noting that higher longer-term interest rates since the Fed's June meeting may be helping to address some inflationary forces.
Long-dated U.S. Treasury yields rose as market participants scrutinized Warsh's comments for indications of future policy direction, reflecting the typical inverse relationship between yields and bond prices. In a note reacting to the press conference, Thomas Ryan, Senior North America Economist at Capital Economics, criticized the messaging, writing that "[T]he vague and arguably counterproductive communications from [...] Warsh during the press conference make forecasting the Fed’s next move even trickier than it already was."
Microsoft posts robust cloud growth
Microsoft delivered strong results in its cloud business and reported growth in paid AI subscribers, addressing investor questions about whether heavy spending on data centers will translate into sustained profits. Revenue for the quarter ended in June rose 18% to $90 billion, while net income increased 31% to $35.8 billion, outpacing market expectations. In a notable disclosure, CEO Satya Nadella revealed that Microsoft's AI-enhanced Azure cloud unit surpassed $100 billion in revenue for the fiscal year ended in June, marking the first time the division has topped that threshold in the company’s annual reporting.
Microsoft's capital expenditure also remained elevated. The company spent $41 billion on capex in the quarter ended in June, a 69.4% increase from the same period a year earlier, and lifted its twelve-month total to $145.3 billion. Microsoft offered few indications that it would alter its AI investment program. Investors appeared reassured by Azure's performance, as shares rose by more than 7% in after-hours trading.
Meta's strong sales overshadowed by spending outlook
Meta Platforms reported record second-quarter sales of $60.8 billion but saw its shares drop by more than 7% in after-hours trading. Market focus centered on Meta's updated capital expenditure outlook: the company forecast at least $130 billion in capex for the year, up from a prior projection of $125 billion, while keeping the top of its range steady at $145 billion.
In addition to the higher spending guidance, Meta reported free cash flow below $1 billion and a quarterly profit that fell 14% to $18.3 billion. The firm's revenue guidance for the coming quarter fell short of expectations. Company executives signaled they would seek to address investor concerns about spending and AI monetization during a post-earnings call, but the immediate market reaction suggested these worries had not been fully alleviated. Meta also reiterated that legal proceedings tied to the social-media sector's influence on younger users could result in a material loss.
Broader earnings flow and sector moves
Beyond the two megacap AI investors, results across technology and consumer-focused companies added nuance to market sentiment. Qualcomm's shares dipped in extended trading after the chipmaker issued weak near-term guidance. The company said it planned to raise product prices to offset rising costs tied to memory and manufacturing, and to address supply chain strains driven by heavy data center demand. Qualcomm posted adjusted earnings per share of $2.21 for its third quarter, a figure slightly below FactSet estimates, while revenue fell 4% to $9.95 billion but still exceeded consensus.
Consumer-facing names delivered more encouraging outcomes. Starbucks beat third-quarter expectations, supported by accelerating traffic in North America and operational improvements tied to its turnaround strategy. The coffee chain's stock rose 4% in after-hours trading. Chipotle Mexican Grill reported results that beat on both the top and bottom lines, aided by new restaurant openings and branding progress, and raised its full-year comparable sales guidance. Chipotle's shares also climbed after the market close.
What markets are watching next
Investors remain focused on further megacap earnings that could clarify how AI spending is translating to revenue and profit, with Apple and Amazon set to report next in the earnings calendar. Market participants are also watching inflation dynamics and energy-price volatility closely, as both influence the Fed's policy calculus and the outlook for consumer and corporate costs.
In the background, questions persist about the sustainability of the AI-driven investment cycle, especially for chipmakers and data center suppliers that have seen more volatile investor sentiment this week. The semiconductor index's multi-session decline and the Nasdaq 100's move into correction territory underscore the market's reassessment of margin and growth expectations in capital-intensive parts of the technology sector.
Conclusion
The combination of a split Fed decision to leave rates on hold, mixed results from high-profile AI investors, and renewed energy-market volatility produced a cautious trading backdrop. While Microsoft’s cloud momentum prompted a positive reaction, Meta’s heavier spending guidance and softer cash generation tempered sentiment. Broader implications for semiconductors, cloud infrastructure, consumer discretionary names, and Treasury yields remain key market levers to watch as investors interpret the interplay between central bank policy, corporate investment in AI, and energy-driven inflation risks.