U.S. stocks sold off sharply on Wednesday as investors confronted three developments at once: renewed geopolitical tension, a Federal Reserve decision that exposed deeper hawkish divisions, and another round of heavy selling across AI hardware names.
The Dow Jones Industrial Average fell 1,153.18 points, or 2.19%, marking its largest one-day point decline since April 2025. The Nasdaq Composite lost 1.74% for its sixth straight down day, while the S&P 500 fell 1.52%. The Nasdaq 100 dropped 2.06% and is now down more than 11% from its June record high, putting the index in technical correction territory. The VIX rose 13.45% to 20.66.
Fed holds rates steady, but dissent resets market expectations
The Federal Reserve on July 29 kept the federal funds rate unchanged at 3.50% to 3.75%. That marked the fifth straight hold in 2026 and the seventh consecutive month without a rate move.
What unsettled markets was not the decision itself, which had been widely expected, but the split behind it. Three of the 12 policymakers cast dissenting votes in favor of an immediate 25-basis-point hike. It was the first time since 2016 that three hawkish dissents appeared at the same meeting.
Fed Chair Warsh struck a firm tone in his press conference. He said the central bank would not tolerate inflation above 2% and said it would drop forward guidance, leaving investors to judge the rate path from incoming data.
Warsh also pointed to the impact of AI-related spending, saying investment in AI-linked high-tech equipment and software has grown at close to 20% over the past four quarters, lifting prices for memory, logic chips and related infrastructure. The Fed, he said, is assessing whether those price gains could spread into broader inflation.
CME FedWatch showed the market-implied probability of a 25-basis-point hike in September rising to 65.2%. CICC said the Fed’s message did not ease inflation concerns and could instead increase volatility in Treasuries and deepen the risk of an equity pullback. The firm said upcoming comments from officials including Governor Waller and Vice Chair Jefferson are worth watching.
JPMorgan, meanwhile, expects the U.S. Treasury to hold back from signaling additional Treasury issuance in next week’s quarterly refunding statement because of political pressure ahead of the midterm elections, even though the bank estimates a $3.7 trillion funding gap over the next four fiscal years.
Geopolitical shock pushes oil higher and steepens the Treasury curve
A brief ceasefire reached last Friday between the U.S. and Iran lasted only four days. After Iran attempted on Tuesday to launch missiles at a U.S. base in Jordan, Washington responded with retaliation. U.S. Central Command said it had completed large-scale strikes on dozens of targets linked to Iran’s Islamic Revolutionary Guard Corps.
President Donald Trump took a hard public line, calling for Iran to be hit hard. According to U.S. media reports cited in the source article, there were also divisions inside the military. Front-line commander Cooper supported a two-week bombing campaign aimed at crippling Iran’s missile capability, while senior military figure Kane was said to be concerned about limited U.S. air defense ammunition inventories and the risk of a wider escalation.
Brent crude for September delivery jumped nearly 8% and returned above $90 a barrel, while WTI crude rose 6.56% to above $84, supported by war risk and a sharp drop in Cushing inventories.
After the Fed decision, the Treasury market delivered another major signal as the yield curve steepened sharply. The 2-year Treasury yield fell to about 4.22%, the 10-year yield rose to 4.70%, and the 30-year Treasury yield climbed 2.14% on the day to 5.23%, the highest level since June 2007. The combination of falling short-end yields and rising long-end yields marked one of the biggest post-Fed curve steepenings since the mid-1990s.
The source article said long-dated Treasuries were hit by broad selling as investors demanded a higher inflation risk premium and questioned the credibility of Warsh’s anti-inflation stance. As short-end yields moved lower and the Fed’s communication anchor disappeared, the U.S. dollar index at one point fell more than 0.6% intraday.
Chip stocks sink again as AI hardware trade keeps unwinding
Memory chips, optical communications and semiconductor equipment names, all among the most crowded AI hardware trades, faced another wave of heavy selling. AI software and energy stocks were relatively more resilient.
The Philadelphia Semiconductor Index plunged 5.33%, extending its losing streak to five sessions. The source article said the index again confirmed entry into a technical bear market on Tuesday and is now down 28.7% from its record high. The DRAM chip ETF fell more than 6%, Micron dropped nearly 10%, and Lumentum lost 7.6%.
Goldman Sachs’ trading desk recorded the largest three-day cumulative de-risking since November 2022, while short selling in the technology sector reached its biggest scale since 2016.
Data from Vanda Research showed that U.S. retail investors on Tuesday posted their largest net selling of individual stocks since the early stage of the COVID pandemic. Of the $213 million in individual-stock selling, about 88% came from the memory chip segment, with Micron, SanDisk, Seagate and Western Digital among the main names sold. Retail traders have now been net sellers of individual stocks for nine straight trading days this year, a pattern the report said did not appear in 2021, 2024 or 2025. Vanda Research said retail investors were not leaving the market but shifting from single stocks into broad-based ETFs to spread risk.
VolSignals founder Daniel Roos said S&P 500 options dealers’ gamma exposure has fallen to low levels for three straight sessions. Historically, similar setups have been followed by average one-month swings of 8.9% in the S&P 500, about 2.5 times the normal level.
Earnings reactions split sharply across sectors
Microsoft fell 0.71% in regular trading but jumped nearly 10% after hours. Fourth-quarter revenue and EPS both beat expectations, Azure grew 43% year over year, annual Azure revenue topped $100 billion for the first time, capital expenditure came in below expectations, and new data-center lease commitments exceeded 130 billion.
Meta lost 1.31% and logged a tenth straight decline, then dropped more than 10% after hours. Its third-quarter revenue guidance missed expectations, and while the company maintained more than $130 billion in AI investment for the full year, free cash flow fell to $784 million, the lowest level in four years.
Qualcomm’s net profit fell 25% year over year, and its shares slipped nearly 3% after hours. The company said its handset chip business was pressured by a sharp rise in memory prices. Revenue fell 4% to $9.95 billion, and the upper end of its fourth-quarter guidance still came in below market expectations.
Arm reported first-quarter revenue of $1.289 billion, up 22% year over year, and EPS that beat expectations, but its second-quarter revenue guidance of $1.38 billion fell short of the most optimistic analyst forecast of $1.5 billion. The stock dropped more than 5% after hours.
Lam Research rose more than 8% after hours. Its fiscal 2026 fourth-quarter revenue reached $6.72 billion, up 15.1% quarter over quarter, while adjusted EPS came in at $1.82, up 23.8% from the prior quarter.
AI application software stocks moved the other way. Adobe gained nearly 6%, Workday and Datadog rose more than 5%, and ServiceNow and Snowflake each climbed close to 5%.
Memory stocks suffered another steep drop, extending the slide to a fourth straight day. Micron fell nearly 10% and is now down more than 41% from its high. SanDisk lost 7.32% and is down more than 55% for the month. SK Hynix fell 2.6% despite reporting first-half operating profit growth of more than fivefold, as the result still missed expectations.
Optical communications stocks also sold off hard. Applied Optoelectronics plunged more than 13%, Coherent fell nearly 9%, Credo and Lumentum each dropped close to 8%, and Marvell Technology lost more than 6%.
Vertiv slumped more than 17%. Its second-quarter revenue was $3.27 billion, up 24% year over year, but below the expected $3.38 billion.
Hims & Hers fell nearly 15% after the U.S. Federal Trade Commission sued the company, alleging it improperly shared users’ health data with third-party advertisers including Meta and Snap.
Among other major names, Nvidia lost 3.55% as Jensen Huang visited Congress to discuss a $50 billion domestic manufacturing plan over four years. Tesla fell 2.97% after Elon Musk said Grok 4.6 would be released around Aug. 7 and would have 1.5 trillion parameters. AMD dropped 5.51%, Intel fell 5.12%, and TSMC ADRs lost 4.48% as the source article said recovery at facilities after the Kumamoto earthquake would take time.
What markets are watching next
On July 30, traders will watch the Bank of England’s rate decision and Governor Andrew Bailey’s press conference. Markets expect no rate change, with the focus on how the central bank describes wages and services inflation.
The U.S. will also release second-quarter annualized GDP and the June core PCE price index. The source article described core PCE as the Fed’s preferred inflation gauge and a direct test of Warsh’s data-dependent approach after scrapping forward guidance. If core PCE tops expectations and the oil shock persists, pricing for a September rate hike could intensify, adding pressure to long-dated Treasuries and equities.
On July 31, investors will look to Japan’s June unemployment rate and the Bank of Japan’s rate decision for any sign of another rate increase.
The next earnings wave includes Apple, Amazon, Coinbase, Strategy, Kioxia, Roblox, Rivian, Exxon Mobil, Chevron, AbbVie, Moderna, Colgate-Palmolive, T. Rowe Price, Eaton, Enbridge and Cameco. The source article said key points of focus include Apple’s services revenue growth, iPhone demand in China and the rollout of Apple Intelligence, as well as whether Amazon Web Services can match the upside surprise seen in Microsoft Azure and whether guidance for AI cloud capital spending becomes more restrained.