Wall Street staged a strong recovery on Thursday as robust earnings from Microsoft eased concerns about the profitability of heavy artificial intelligence investments. Technology and semiconductor shares led the rebound, lifting major indices after a sharp selloff in the previous session.
The Dow Jones Industrial Average opened 1.01% higher, the S&P 500 gained 1.02%, and the NASDAQ Composite climbed 1.67%. The tech-heavy NASDAQ later advanced about 2% as Microsoft and chip stocks extended gains.
Microsoft Leads Technology Stock Recovery
Microsoft shares surged roughly 15% after the company reported better-than-expected earnings and revenue, driven by growth in its Azure cloud business. The results reassured investors that its massive AI spending could yield higher returns.
Semiconductor stocks also rallied, with the iShares Semiconductor ETF rising more than 7%, making technology the strongest S&P 500 sector. Consumer discretionary stocks also posted gains.
Meta Platforms bucked the trend, falling about 8% after issuing a softer revenue forecast and reporting a sharp decline in second-quarter free cash flow. The company also raised its expected AI infrastructure spending.
Stephen Evans, Chief Investment Officer at Pave Finance, described the market reaction as “a tale of two AI investment strategies,” noting that one company increased profits while spending heavily, while another allowed costs to erode earnings.
Economic Growth Slows in Second Quarter
New data showed the U.S. economy expanded at a slower pace. Gross domestic product increased at a 1.5% annual rate in the second quarter, below the estimated 2% and down from 2.1% growth in the first quarter. The slowdown added pressure as investors weighed high borrowing costs, softer business activity, and shifting consumer demand.
Jobless claims for the week ended July 25 came in at 197,000, below the expected 200,000 but up 9,000 from the prior week’s revised level. The data indicated that layoffs remained limited despite weaker growth, though investors continued to assess the impact on hiring, wages, and household spending.
Inflation Keeps Federal Reserve Policy in Focus
June’s Personal Consumption Expenditures (PCE) price index fell 0.1%, while the annual inflation rate stood at 3.7%, matching expectations but remaining above the Federal Reserve’s 2% target. Core PCE, which excludes food and energy, rose 0.1% month-over-month, with an annual rate of 3.3%, slightly below the expected 0.2% monthly increase.
The data arrived a day after the Fed kept interest rates unchanged. Investors assessed whether slower growth and persistent inflation could influence the central bank’s September decision. Sameer Samana of Wells Fargo Investment Institute said the Fed “remains patient” and continues to monitor economic conditions, adding that September remains open for action if incoming data supports a policy change.
Market Breadth Stays Narrow Despite Rally
The rebound was not broad-based. Shortly after the open, only 243 companies in the S&P 500 traded higher, and only five of the index’s 11 sectors posted gains. Technology shares rose about 4%, while consumer discretionary stocks gained roughly 1.3%, indicating that a small group of large companies drove much of the advance.
Bond yields remained in focus after the Fed decision. The 30-year Treasury yield held near levels last seen in 2007, after moving above 5.2%. Other yields changed little.
Wall Street was recovering from Wednesday’s losses, when the Dow fell more than 1,100 points and the NASDAQ 100 entered correction territory. Amazon, Apple, and Coinbase were due to report after Thursday’s close.
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