U.S. equity futures held near unchanged levels on Thursday following a heavy decline earlier in the week driven by questions about the Federal Reserve’s policy direction and investors’ anxiety over corporate AI spending. Microsoft provided a partial counterweight to that selling after reporting quarterly results that beat expectations.
In premarket trading, Microsoft shares jumped nearly 9% after the company forecast current-quarter sales and cloud growth above consensus, delivered a capital expenditure outlook below Wall Street estimates and said it expects to continue generating cash through its just-started fiscal 2027. The combination of stronger revenue guidance, more modest capex plans and continued cash generation appeared to temper concerns that aggressive AI investments would sharply erode near-term profitability at even the largest technology firms.
Nevertheless, investor unease about mounting AI costs remained a central theme. Recent negative cash-flow reports from Alphabet and Tesla contributed to a wave of selling in AI-linked stocks last week, a move that extended to semiconductor names as market participants questioned lofty valuations. The tech-heavy Nasdaq had fallen 10% from its early June peak as of Wednesday.
Meta Platforms illustrated how persistent AI spending pressure can hit corporate cash flows. The social media giant’s stock dropped 9.2% after it reported a 91% decline in second-quarter free cash flow, highlighting the financial strain of its AI buildout.
Major technology names continued to influence sentiment across the market. Apple and Amazon were scheduled to report earnings after markets closed on Thursday, events that investors were watching closely for further clues on how big tech is balancing growth and AI investment.
Market declines accelerated on Wednesday after the Fed left its policy rate unchanged in the 3.50%-3.75% range. Traders said mixed commentary from new Fed Chair Kevin Warsh left them uncertain about the likely path of borrowing costs, prompting a sharp move lower in equities. Fixed income markets reflected rising long-term yields: the U.S. 30-year Treasury yield climbed to levels not seen in 19 years on Thursday, while the 2-year note yield - the part of the curve tied most closely to near-term rate expectations - was largely unchanged at 4.26%.
Traders were pricing in a roughly 65% probability that the central bank will raise interest rates by 25 basis points at its September meeting, according to the CME Group’s FedWatch tool. Attention was also turning to a slate of economic releases due at 8:30 a.m. ET, including the preliminary reading of second-quarter GDP, June personal consumption expenditures and weekly initial jobless claims.
Consensus forecasts called for the GDP report to show the U.S. economy grew at a 2.1% annualized rate in the second quarter, matching the pace seen in the January-March period, with forecasters noting the economy largely withstood disruptions related to the Middle East conflict.
By 6:18 a.m. ET, futures indicated modest gains for major indexes: S&P 500 E-minis were up 30.5 points, or 0.41%; Nasdaq 100 E-minis were up 236.25 points, or 0.86%; and Dow E-minis were up 119 points, or 0.23%.
Individual stock moves reflected the mixed backdrop. Qualcomm fell 5.3% after forecasting fourth-quarter profit below estimates and warning that revenue from Apple products would decline faster than expected. U.S.-listed shares of Arm slipped 5% after the British chip designer said it expects smartphone royalties to decline in "this next quarter".
Corporate earnings overall showed resilience: nearly half of S&P 500 companies had reported second-quarter results at the time of the data, and 85.2% of those had beaten analysts’ profit estimates, according to LSEG IBES data, compared with a historical average beat rate of 68%. Consumer-facing companies drew attention as well - Starbucks climbed 7.3% after raising its annual sales and profit guidance, and Chipotle Mexican Grill rose 5% after increasing its annual sales forecast.
Market context: The flow of corporate results, shifts in Treasury yields and incoming economic data left investors navigating an uncertain landscape where strong individual company reports could be offset by broader worries about AI investment costs and monetary policy direction.