U.S. stocks rebounded on Thursday, led by a 15% surge in Microsoft shares following strong cloud growth results. The market recovery comes as investors digest inflation data, ongoing uncertainty surrounding Federal Reserve interest rate policy, and soaring 30-year Treasury yields.
Wall Street mounted a sharp recovery on Thursday, clawing back a portion of the steep losses suffered during the prior day’s selloff. The market turnaround was spearheaded by technology heavyweights, with Microsoft driving major gains across the major indices following an earnings report that alleviated immediate concerns regarding corporate artificial intelligence spending.
The Nasdaq Composite climbed 2.5%, putting it on track for its best single-day performance since June 15, while the S&P 500 advanced 1.2%. The Dow Jones Industrial Average added 348 points, or 0.7%, reversing part of an aggressive downturn that saw the blue-chip average plunge more than 1,100 points in the previous session—its worst single-day decline since April 2025.
Microsoft Earnings and the Two AI Investment Strategies
The catalyst for the tech-led bounce was Microsoft, which leaped 15.1% after reporting a stronger profit for the latest quarter than Wall Street analysts anticipated. CEO Satya Nadella pointed to robust growth in the company’s Azure cloud business as proof that customers are actively utilizing Microsoft infrastructure to transition into artificial intelligence operations.
Crucially for jittery investors, Microsoft did not announce a massive escalation in its planned capital expenditures for artificial intelligence infrastructure. That restraint provided a stark contrast to recent reports from other major technology firms whose heavy spending has weighed on cash flows.
That divergence in corporate spending strategies became glaringly apparent as other tech giants released figures. Meta Platforms shares fell 9% after the company issued a soft revenue forecast alongside a 91% drop in second-quarter free cash flow, demonstrating the exact financial drag that investors have increasingly grown to fear.
Semiconductor Recovery and Global Market Movements
The renewed confidence sparked by Microsoft’s report also breathed life back into the semiconductor sector, which had absorbed heavy losses amid concerns that hardware valuations had climbed too high during the initial wave of AI euphoria. Chipmakers and hardware suppliers staged a broad relief rally.
Micron Technology surged 13%, while Advanced Micro Devices gained more than 13%. Lam Research soared 19% following its own stronger-than-expected quarterly profit and revenue disclosures. The broader iShares Semiconductor ETF rallied by more than 8%.
Overseas markets painted a more mixed picture. In Europe, the pan-European STOXX 600 index rose 0.88%, and France’s CAC 40 gained 0.8%. In Asia, South Korea’s Kospi fell 1.23% to conclude its third consecutive day in negative territory.
Inflation Data and Federal Reserve Policy Pressures
While equities found temporary relief, the macroeconomic backdrop remained tense. Newly released economic data showed inflation remaining above the Fed’s target, with the core reading for the personal consumption expenditures price index in June showing an annual level of 3.3%. Separate figures revealed that second-quarter U.S. economic growth slowed to 1.5%, missing consensus forecasts of 1.8%.
The data followed a Federal Reserve decision to leave interest rates unchanged, a move that drew dissents from three of the 12 Federal Open Market Committee members who favored a quarter-percentage-point rate hike. Federal Reserve Chairman Kevin Warsh offered limited forward guidance during his subsequent remarks, noting that bond yields had already climbed significantly since the central bank’s previous meeting.
Munoz added that while Warsh is pointing to the market doing the job of the central bank by tightening financial conditions through higher yields, at some point there has to be some follow-through
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Bond Market Pressures and Credibility Concerns
The reaction in fixed-income markets underscored investor anxiety regarding long-term price stability. The 30-year Treasury yield climbed to 5.2444%, marking its highest level since mid-2007, as rising oil prices driven by renewed military conflict involving Iran further stoked inflation worries.
Principal Asset Management chief global strategist Seema Shah warned that relying on financial markets rather than direct central bank action to restrain inflation carries distinct risks for institutional credibility.
“If investors conclude that the latter is true, the credibility of the Fed’s inflation-fighting commitment could come under increasing scrutiny. Arguably, it already is.”
Seema Shah, chief global strategist at Principal Asset Management, via AP News
As corporate earnings season rolls forward, market participants are pricing in roughly 64% odds of a Federal Reserve rate hike at the upcoming September meeting, keeping bond yields and upcoming retail technology earnings squarely in focus.
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