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Stocks slide as Fed stance rattles markets

A divided Federal Reserve unsettled investors on Wednesday, as its decision to keep rates unchanged came with three votes for an increase and renewed emphasis on persistent inflation risks. Wall Street closed sharply lower, led by technology shares, while most Asian markets were trading lower on Thursday despite a strong quarterly result from Samsung Electronics. After-hours gains for Microsoft contrasted with a sharp decline in Meta shares, adding to concerns over the substantial investment required to support Artificial Intelligence (AI) growth. Attention on Thursday will turn to the Bank of England’s policy decision, US growth and inflation data, and quarterly results from Amazon and Apple.

  • Date
  • Author Shane Strowmatt, Senior Investment Writer
  • Reading time 5 minutes

US Federal Reserve
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The Federal Reserve left its benchmark rate at 3.5% to 3.75% on Wednesday for the fifth consecutive meeting, although three officials favoured a quarter-point increase. Federal Reserve Chair Kevin Warsh said the US economy, investment and labour market remained resilient, but stressed that inflation was still too high and that the central bank remained committed to its 2% target. Core consumer-price inflation slowed to 2.6% in June from 2.9% in May, while headline inflation fell to 3.5% from 4.2%, helped by a nearly 10% drop in petrol prices. Renewed Middle East tensions have since lifted oil prices again, raising concern that energy costs could feed into broader inflation. US Treasury yields rose on Wednesday, with the two-year yield climbing to 4.3% and the 10-year yield reaching 4.7%, as investors reassessed the prospect of further monetary tightening. Meanwhile, gold fell 0.5% to USD 4046.48 per ounce, while the US dollar was little changed, as Warsh’s inflation remarks and recovering Treasury yields reduced the appeal of bullion.

US stocks decline after Fed decision

US equities fell sharply on Wednesday after the Fed decision. The Dow Jones Industrial Average dropped 2.2% to 51,594.14 points, the S&P 500 lost 1.5% to 7316.15 points and the Nasdaq-100 declined 2.1% to 27,192.31 points, its sixth consecutive fall. Rising oil prices following renewed Iranian attacks also unsettled investors, benefiting Chevron and ExxonMobil but weighing on airlines. Technology and AI-linked shares were particularly weak, with Micron falling 10% and Nvidia declining 3.6%.

Microsoft rises as Meta slides after results

Microsoft shares rose 7.9% in after-hours trading on Wednesday after the software group reported fiscal fourth-quarter earnings per share of USD 4.74 and revenue of USD 90 billion, both above expectations, while Azure revenue exceeded USD 100 billion for the first time. Meta shares fell 7.5% after the Facebook parent reported second-quarter revenue of USD 60.8 billion, beating forecasts, but earnings per share of USD 6.18 missed expectations owing to USD 3.6 billion in legal and severance charges. Meta’s third-quarter revenue guidance of USD 61 billion to USD 64 billion also fell short at the midpoint, while its planned 2026 capital expenditure range rose to USD 135 billion to USD 145 billion; Microsoft’s quarterly capital expenditure totalled USD 41 billion.

Asian stocks fall despite Samsung results

Most Asian equity markets declined on Thursday as concerns about the returns on AI-investment persisted, while uncertainty over the Federal Reserve’s next policy move and renewed US-Iran tensions also weighed on sentiment. Korea’s Kospi fell 1.1% after reversing an opening gain of almost 5%, extending a two-day decline of nearly 17%, despite Samsung Electronics reporting a more than 250-fold increase in semiconductor operating profit from a year earlier. Samsung shares were essentially flat, while SK Hynix fell about 4% after its record profits did not meet elevated expectations. China’s CSI 300 lost 1%, whereas Japan’s Nikkei 225 gained 0.7%. Australian stocks slipped almost 1%.

European shares decline before Fed decision

European equities mostly fell on Wednesday as higher oil prices, renewed Iran-US tensions and caution before the Federal Reserve decision weighed on sentiment. The Euro Stoxx 50 declined 0.7% to 6245.35 points, while Switzerland’s SMI lost 0.6% to 14,486.10 points after its recent record rally. Luxury shares were mixed, with Hermès dropping 11% after concerns about its leather-goods business and more limited scope for price increases, whereas Kering gained almost 17% as Gucci’s performance improved. Energy stocks benefited from rising crude prices, led by Eni’s 7.1% gain following strong results and a larger share-buyback programme.

Corporate and economic calendar

Economic data in focus: French gross domestic product (07:30), Swiss KOF Economic Barometer (09:00), German gross domestic product (10:00), Italian gross domestic product (10:00), EU gross domestic product (11:00), EU unemployment rate (11:00), Italian unemployment rate (11:00), Bank of England interest rate decision (13:00), German Consumer Price Index (14:00), US personal consumption expenditures (14:30), US gross domestic product (14:30) and US weekly initial jobless claims (14:30).

Corporate news in focus: Quarterly figures from Amazon, Apple, Bristol-Myers Squibb, Cigna, Mastercard, Regeneron Pharmaceuticals, and Stryker.

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.