U.S. stock markets experienced significant declines after the Federal Reserve opted to keep interest rates unchanged, leading to a hawkish hold. The Dow Jones Industrial Average plunged by 2.19% to 51,594.14 points, the S&P 500 fell 1.52% to 7,316.15 points, and the Nasdaq Composite dropped 1.74% to 24,442.94 points. The benchmark S&P 500 reached a one-month low, while the Nasdaq 100, composed of the Nasdaq exchange's most valuable non-financial companies, marked an 11% drop from its June record high.
Chipmakers and AI infrastructure stocks were hit particularly hard, with the Philadelphia Stock Exchange Semiconductor Index ($SOX) falling over 5% to a 2.5-month low. Several prominent chip companies saw substantial losses, including Nebius Group NV (NBIS) down over 12%, KLA Corp (KLAC) down over 10%, Micron Technology (MU) down over 9%, and Advanced Micro Devices (AMD), Microchip Technology (MCHP), and Intel (INTC) all closing down over 5%. AI-related chipmakers extended recent losses after SK Hynix's quarterly profit, despite a sixfold jump, fell short of investor expectations, causing its shares to fall 10%.
The Fed's decision to maintain the benchmark interest rate in the 3.50% to 3.75% range was widely anticipated by investors. However, inflation has been a concern, running above the central bank’s target for more than five years. Three of the 12 members of the policy-setting Federal Open Market Committee dissented, preferring a quarter-percentage-point hike. Markets are now pricing in a 56% chance of a 25 basis point rate hike at the next FOMC meeting in September, with some analysts noting the pressure on the Fed to hike due to persistent inflation and surging crude oil prices.
Despite the market downturn, some companies provided mixed signals. Microsoft climbed 0.6% in extended trade after surpassing Wall Street estimates for quarterly cloud revenue growth, indicating success in its AI infrastructure investments. Conversely, Meta Platforms dropped 4% in extended trade after increasing its estimated 2026 capital expenditure to between $130 billion and $145 billion. Vertiv Holdings (VRT), an AI infrastructure company, slumped 17% after missing quarterly revenue expectations with net sales of $3.27 billion, below the consensus of $3.39 billion.
