U.S. markets rebound in early trading as Microsoft lifts tech sentiment

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U.S. markets rebound on Microsoft

Highlights

Nasdaq Composite rebounds 2.25%, S&P 500 rises 1.17%, and Dow Jones up 0.66% following prior Federal Reserve-driven declines and a split vote on rate hikes.
Microsoft surges nearly 10% after exceeding Azure revenue expectations, crossing $100 billion in annual sales, and growing CoPilot paid users to 30 million.
Meta drops nearly 10% as Q2 free cash flow falls 91% to $784 million and Q3 guidance disappoints, while Lam Research jumps 19% and Starbucks gains about 5% on strong earnings.

Early rebound follows Fed-driven selloff

As reported by Cboe Global Markets, all three main U.S. equity indices are trading higher after Wednesday's rout, with the Nasdaq Composite up 2.25%, the S&P 500 gaining 1.17% and the Dow Jones Industrial Average rising 0.66%. The Nasdaq is regaining ground after three consecutive declines pushed it into correction territory.

The previous session's losses follow the Federal Reserve's decision to leave rates steady at 3.50% to 3.75%. The Dow falls 2.19% at the close, or 1,153 points, marking its worst day in more than a year, while the Nasdaq loses 1.74% and the S&P 500 drops 1.52%.

Three dissenters support a 25 basis point increase, a rare split that signals rising pressure inside the Federal Open Market Committee to act against inflation. Investors appear particularly unsettled by Chair Kevin Warsh's bearish comments on bonds and inflation risk, while the 30-year Treasury yield stands at 6.78% in early trading, its highest level since 2007, and the CME FedWatch tool points to nearly a 60% chance of a September rate increase to 3.75% to 4%.

Earnings moves shape sector sentiment

Technology shares are setting the tone for the broader rebound, with Microsoft climbing nearly 10% after reporting strong results that suggest its artificial intelligence spending is starting to generate returns. Azure revenue grows 43% in the fiscal fourth quarter, ahead of Wall Street expectations, while annual Azure sales top $100 billion for the first time and CoPilot adds 10 million paid users from a year earlier, bringing the total to 30 million.

Meta is moving in the opposite direction, falling nearly 10% after posting record revenue but missing on profit and issuing soft third-quarter guidance. Investors are focusing on free cash flow, which drops 91% to $784 million from more than $8.5 billion a year earlier, while the company raises the lower end of its capital expenditure range to $130 billion from $125 billion.

Elsewhere, Lam Research jumps 19% after reporting earnings well above expectations and raising its profit outlook, helped by strong chip demand linked to AI spending. Starbucks gains about 5% after beating Wall Street estimates and lifting its outlook, while Yum Brands rises 4.6% after better-than-expected second-quarter per-share profit despite weaker revenue.

Crude oil prices are trending about 1% lower after the previous session's jump tied to renewed Middle East conflict, with WTI trading in the mid-$83 range. Investors are also looking ahead to Apple and Amazon results after the bell, with attention on device pricing, iPhone demand, AWS growth, June Prime Day performance and the scale of ongoing AI investment.

Our earlier analysis of the S&P 500’s tech-led bounce highlighted that gains were being driven by upbeat Q2 earnings expectations from major technology names, including Microsoft, alongside a still-uncertain Fed backdrop. We also noted that the index remained below key short- and medium-term moving averages and that slowing corporate buybacks could make the rally vulnerable, pointing to choppy, range-bound trading unless key support and resistance levels break decisively.

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