Stocks Plunge on a Rout in Chipmakers and a Hawkish Fed Hold

The S&P 500 Index ($SPX) (SPY) on Wednesday closed down -1.52%, the Dow Jones Industrial Average ($DOWI) (DIA) closed down -2.19%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -2.06%.  September E-mini S&P futures (ESU26) fell -1.59%, and September E-mini Nasdaq futures (NQU26) fell -2.23%.

Stock indexes retreated on Wednesday, with the S&P 500 sliding to a 1-month low and the Nasdaq 100 sinking to a 3-month low.  Chipmakers and AI infrastructure stocks sold off on Wednesday, leading the overall market lower.  Also, heightened geopolitical risks are weighing on stocks as crude prices surged, and bond yields jumped when President Trump said the US will “hit Iran hard” after a recent attack from Iran that targeted a US base in Jordan. 

Stocks whipsawed Wednesday afternoon and briefly erased their losses before selling off again into the close after the FOMC kept interest rates unchanged in a hawkish Fed hold.  Three Fed members dissented in favor of a quarter-point rate hike, and Fed Chair Warsh said the Fed is committed to “deliver price stability.”  The 10-year T-note yield rose +4 bp to 4.64%.

Earnings results from Microsoft and Meta Platforms after Wednesday’s close will be looked at to see whether the vast spending behind the buildout of artificial intelligence can deliver adequate returns. 

The FOMC, as expected, kept the fed funds target range unchanged at 3.50% to 3.75% in a 9-3 vote, with Cleveland Fed President Beth Hammack, Minneapolis Fed President Neel Kashkari, and Dallas Fed President Lorie Logan voting for a quarter-point rate hike.

The post-FOMC statement said, "Economic activity is expanding at a solid pace despite elevated uncertainty that owes, in part, to the conflict in the Middle East," adding that "productivity growth and capital investment are strong."  Inflation remains elevated "in part reflecting supply shocks that have driven price increases in certain sectors, including energy." 

Fed Chair Warsh said, "The economy is showing impressive resilience" even with recent shocks and policymakers "will not hesitate to act" if inflation remains elevated.

Sep WTI crude oil prices (CLU26) jumped by more than +6% on Wednesday as the recent lull in hostilities came to an abrupt end after the Islamic Revolutionary Guard Corps (IRGC) said it targeted a US airbase and command center in Jordan with ballistic missiles. The IRGC also claimed to have hit and halted three tankers attempting to transit through the Strait of Hormuz. Meanwhile, the US and Saudi Arabia launched a joint attack on "Iran-aligned terrorists" in Iraq after the IRGC directed them to target US forces and Saudi energy infrastructure.

Tensions remain high in the Middle East as the US maintains its blockade of Iranian oil shipments in the Persian Gulf.  Also, diplomatic attempts to reopen the Strait of Hormuz appear to be at an impasse.  Iranian Deputy Foreign Minister Gharibabadi said Oman's proposal for a route through the Strait of Hormuz, with 50% under Iran's control and 50% under Oman's, would not address Iran's concerns and that the inbound passage and part of the outbound channel must be entirely under Iran's control.

US MBA mortgage applications fell -6.4% in the week ended July 24, with the purchase mortgage sub-index down -3.6% and the refinancing mortgage sub-index down -9.9%.  The average 30-year fixed rate mortgage rose +7 bp to an 11.5-month high of 6.76% from 6.69% the prior week.

The outlook for strong Q2 earnings, which continue this week, is a bullish factor for stocks.  The markets are awaiting results from a raft of megacap technology companies this week, including Microsoft and Meta Platforms today, and Amazon.com and Apple on Thursday.  Forecasts compiled by Bloomberg Intelligence suggest Q2 earnings may increase by +23%, close to Q1’s blowout earnings of +30%, which was more than double the +12% analysts had expected.  AI spending is expected to account for most of earnings, with AI infrastructure stocks set to contribute nearly 60% of the S&P 500's earnings-per-share growth in Q2. So far, earnings results have been positive, with 87% of the 216 S&P 500 companies that have reported Q2 earnings beating estimates, according to Bloomberg data. 

The markets are discounting a 56% chance of a +25 bp rate hike at the next FOMC meeting on September 15-16.

Overseas stock markets settled mixed on Wednesday.  The Euro Stoxx 50 closed down -0.65%.  China's Shanghai Composite rebounded from a 1-week low and closed up +0.40%.  Japan's Nikkei-225 Stock Average fell to a 2.25-month low and closed down -1.49%.

Interest Rates

September 10-year T-notes (ZNU6) on Wednesday closed down -1 tick.  The 10-year T-note yield rose +3.3 bp to 4.639%.  T-notes were under pressure from Wednesday’s +6% surge in crude oil prices, which raises inflation expectations and is hawkish for Fed policy.  Also, the FOMC's hawkish hold on interest rates weighed on T-note prices after three Fed members dissented in favor of a 25 bp rate hike, and Fed Chair Warsh said policymakers "will not hesitate to act" if inflation remains elevated. 

European government bond yields moved higher on Wednesday.  The 10-year German bund yield rose +5.6 bp to 3.160%.  The 10-year UK gilt yield rose +9.2 bp to 5.036%.

The German Jun import price index eased to 6.1% y/y from 6.8% y/y in May.

The markets are discounting a 90% chance of a +25 bp ECB rate hike at their next policy meeting on September 10.

US Stock Movers

Chipmakers and AI-infrastructure stocks fell sharply on Wednesday, weighing on the broader market. The Philadelphia Stock Exchange Semiconductor Index ($SOX) dropped to a 2.5-month low and closed down more than -5%.  Nebius Group NV (NBIS) closed down more than -12% to lead losers in the Nasdaq 100, and KLA Corp (KLAC) closed down more than -10%.  Also, Micron Technology (MU) closed down more than -9%, and Applied Materials (AMAT) and ARM Holdings (ARM) closed down by more than -8%.  In addition, Sandisk (SNDK) and NXP Semiconductors NV (NXPI) closed down more than -7%, and Marvell Technology (MRVL) and Lam Research (LRCX) closed down more than -6%. Finally, Advanced Micro Devices (AMD), Microchip Technology (MCHP), and Intel (INTC) closed down more than -5%.  

Airline stocks fell on Wednesday as crude oil prices surged.  Alaska Air Group (ALK) closed down more than -5%, and Southwest Airlines (LUV) closed down more than -4%.  Also, Delta Air Lines (DAL), American Airlines Group (AAL), and United Airlines Holdings (UAL) closed down more than -3%. 

Trucking and freight companies were under pressure on Wednesday amid soaring crude oil prices.  ArcBest (ARCB) closed down more than -5%, and FedEx Freight Holding (FDXF) closed down more than -4%.  Also, Saia Inc (SAIA) closed down more than -3%, and Old Dominion Freight Line (ODFL) and XPO Inc (XPO) closed down more than -2%.  In addition, Marten Transport Ltd (MRTN) closed down more than -1%. 

Most software stocks rose on Wednesday as investors rotated out of chipmakers into software.  Intuit (INTU) closed up more than +6%, and Adobe Systems (ADBE), Datadog (DDOG), and Workday (WDAY) closed up more than +5%.  Also, Atlassian Corp (TEAM) and ServiceNow (NOW) closed up more than +4%, and Salesforce (CRM) closed up more than +3% to lead gainers in the Dow Jones Industrials. In addition, Autodesk (ADSK) closed up more than +3%, and Thomson Reuters (TRI) closed up more than +2%.

Energy producers and service providers rallied on Wednesday, as crude oil prices jumped by more than +6%.  APA Corp (APA) closed up more than +5%, and Diamondback Energy (FANG) and Devon Energy (DVN) closed up more than +4%.  Also, ConocoPhillips (COP) and Occidental Petroleum (OXY) closed up more than +3%, and ExxonMobil Holdings (XOM) and Chevron (CVX) closed up more than +2%.

Lennox International (LII) closed down more than -20% to lead losers in the S&P 500 after reporting Q2 net sales of $1.55 billion, weaker than the consensus of $1.56 billion.

Vertiv Holdings (VRT) closed down more than -17% after reporting Q2 net sales of $3.27 billion, below the consensus of $3.39 billion.

Masco Corp (MAS) closed down more than -11% after reporting Q2 net sales of $1.99 billion, weaker than the consensus of $2.08 billion.

Caterpillar (CAT) closed down more than -6% to lead losers in the Dow Jones industrials after Baird downgraded the stock to neutral from outperform, citing a growing trend of state and local government actions targeting data centers, a key growth driver for the company.

Avis Budget Group (CAR) closed down more than -6% after reporting Q2 EPS of 98 cents, well below the consensus of $1.91.

Humana (HUM) closed down more than -5% after it maintained its full-year profit outlook despite posting better-than-expected Q2 profit. 

Garmin Ltd (GRMN) closed up more than +16% to lead gainers in the S&P 500 after reporting Q2 revenue of $2.02 billion, above the consensus of $1.92 billion, and raising its full-year revenue estimate to $8.05 billion from a previous estimate of $7.90 billion, stronger than the consensus of $7.99 billion.

GE Healthcare (GEHC) closed up more than +12% to lead gainers in the Nasdaq 100 after reporting Q2 adjusted EPS of $1.13, better than the consensus of $1.04.

Amphenol (APH) closed up more than +4% after reporting Q2 net sales of $8.76 billion, better than the consensus of $8.31 billion.

Ford Motor (F) closed up more than +2% after raising its full-year adjusted EBIT to $10 billion to $11 billion from a previous forecast of $8.5 billion to $10.5 billion. 

Earnings Reports (7/30/2026)

A O Smith Corp (AOS), Air Products and Chemicals Inc (APD), Alliant Energy Corp (LNT), Altria Group Inc (MO), Amazon.com Inc (AMZN), American Electric Power Co Inc (AEP), Apple Inc (AAPL), Arthur J Gallagher & Co (AJG), Avery Dennison Corp (AVY), Baxter International Inc (BAX), Bristol-Myers Squibb Co (BMY), Builders FirstSource Inc (BLDR), Camden Property Trust (CPT), Cigna Group/The (CI), Coinbase Global Inc (COIN), Corteva Inc (CTVA), CRH PLC (CRH), Dexcom Inc (DXCM), Edison International (EIX), EMCOR Group Inc (EME), Erie Indemnity Co (ERIE), Eversource Energy (ES), Exelon Corp (EXC), First Solar Inc (FSLR), GoDaddy Inc (GDDY), Hershey Co/The (HSY), Huntington Ingalls Industries (HII), Ingersoll Rand Inc (IR), Intercontinental Exchange Inc (ICE), International Paper Co (IP), KKR & Co Inc (KKR), Labcorp Holdings Inc (LH), Live Nation Entertainment Inc (LYV), Martin Marietta Materials Inc (MLM), Mastercard Inc (MA), Mettler-Toledo International Inc (MTD), Monolithic Power Systems Inc (MPWR), Norwegian Cruise Line Holdings (NCLH), Quanta Services Inc (PWR), Regeneron Pharmaceuticals Inc (REGN), Southern Co/The (SO), Stryker Corp (SYK), Trane Technologies PLC (TT), Valero Energy Corp (VLO), Weyerhaeuser Co (WY), Willis Towers Watson PLC (WTW), Xcel Energy Inc (XEL), Yum!  Brands Inc (YUM).