Wall Street experienced a significant rally on Thursday, July 30, with the S&P 500 climbing 1.66% to 7,437.63 points, the Nasdaq surging 2.78% to 25,122.18 points, and the Dow Jones Industrial Average rising 1.19% to 52,208.06 points. This rebound was primarily driven by Microsoft, which saw its stock jump over 15%, marking its biggest daily percentage gain in 18 years and boosting its market value by an unprecedented $450 billion. The tech giant's stellar forecast for quarterly sales and cloud growth, coupled with lower-than-expected capital expenditures and a projection of continued cash generation through fiscal 2027, alleviated investor anxieties about massive AI infrastructure spending.
The positive sentiment from Microsoft's results extended to the broader technology sector and chip stocks. The PHLX chip index surged 8.2%, with Micron Technology jumping 18%, Sandisk soaring 26%, and Advanced Micro Devices up 13%. Technology was the leading sector among the S&P 500's 11 sectors, gaining 5.2%, followed by consumer discretionary with a 1.6% increase. This surge in AI-related stocks contributed to analysts' expectations of a 40% jump in aggregate S&P 500 second-quarter earnings from a year ago.
However, not all tech companies fared equally. Meta Platforms tumbled 9% after reporting a 91% drop in second-quarter free cash flow, highlighting the financial strain of its costly AI buildout and reinforcing investor scrutiny of AI-related capital spending. Qualcomm also fell 2.6% after forecasting fourth-quarter profit below estimates. Conversely, Amazon rose 3.9% ahead of its earnings report, while Apple dipped 1.4%. Jed Ellerbroek, a portfolio manager at Argent Capital Management, noted that Microsoft's performance might move it from a "battleground" stock to a "trusted AI winner" stock, in contrast to others where the return on investment for massive capital expenditures is still debated.
The market's strong performance on Thursday also followed a sharp sell-off the previous day, which was triggered by investor concerns over the Federal Reserve's inflation strategy. The S&P 500 is now trading at approximately 20 times expected earnings, slightly above its 10-year average of 19. Economic data released indicated that the US economy expanded at an annualized rate of 1.5% in the second quarter, below expectations of 2.1%, and inflation moderated in June. Traders also reduced the probability of a September interest rate increase to about 59% from 82% a week earlier.
