US stocks experienced a significant downturn with the S&P 500 falling 1.5%, the Dow Jones Industrial Average down 2.19%, and the Nasdaq 100 dropping 2.06%. This broad market decline followed the Federal Reserve's decision to keep interest rates unchanged, a move anticipated by investors. However, the accompanying hawkish sentiment, with three Fed members dissenting in favor of a quarter-point rate hike, contributed to the sell-off. Fed Chair Warsh's commitment to "deliver price stability" further suggested potential future rate hikes, with market strategists like Ryan Detrick from Carson Group anticipating a September hike.
The market was particularly impacted by a rout in chipmakers and AI infrastructure stocks, leading to the Nasdaq 100 entering a technical correction, down 11% from its June record high. SK Hynix saw its shares fall 10% after its quarterly profit, though significant, did not meet lofty investor expectations. Intel also closed down more than 5%. Concerns are also rising about the sustainability of AI-linked investments, with investors questioning if major US companies are funneling billions into the emerging technology at the expense of free cash flow, especially with increasing competition from China.
Geopolitical tensions added to the market pressure, with Brent crude topping $90, marking its highest level since 2007. The 10-year Treasury yield rose to 4.64%, reaching levels not seen since 2007. Despite these negative factors, Q2 earnings expectations remain strong, with forecasts suggesting a 23% increase, propelled largely by AI infrastructure stocks. Microsoft and Meta Platforms reported earnings after the market close today, with Microsoft initially up 4% and Meta down 8% in late trading. However, the S&P 500 slipped to a one-month low and the Nasdaq 100 to a three-month low.
