U.S. stocks opened sharply higher on Thursday, recovering from the previous session's steep losses, as investors digested a batch of corporate earnings and fresh economic data that pointed to moderating inflation. The Dow Jones Industrial Average rose 239 points, or 0.46%, while the S&P 500 gained 0.91% and the Nasdaq Composite climbed 1.68%.
The rebound was led by technology shares, particularly Microsoft, whose quarterly results exceeded analyst expectations and provided a fresh dose of optimism around artificial intelligence investments. The software giant's stock surged after it reported stronger-than-expected Azure cloud revenue and issued an upbeat outlook for the current quarter. Microsoft also projected capital expenditures below consensus estimates, easing fears that heavy AI spending is eroding profitability. The positive sentiment spilled over into the semiconductor space, with the iShares Semiconductor ETF (SOXX) rising more than 5% after several days of declines.
However, the AI narrative was not uniformly positive. Meta Platforms saw its shares drop nearly 10% after reporting a 91% plunge in free cash flow and issuing weaker-than-expected revenue guidance. The contrasting reactions underscore the market's intense scrutiny of how much companies are spending on AI infrastructure and whether those investments are translating into sustainable earnings growth. For more on the divergence between tech giants, see our analysis of why Microsoft soared while Alphabet sank.
Economic Data Shows Slower Growth, Softer Inflation
On the macroeconomic front, the advance estimate of second-quarter GDP came in at an annualized 1.5%, below the 1.8% to 2.1% range economists had expected. The miss was partly attributed to a widening trade deficit and slower consumer spending. However, inflation data provided some relief. The Personal Consumption Expenditures (PCE) price index fell 0.1% in June, matching forecasts, while core PCE—which excludes food and energy—rose just 0.1% month-over-month, below the 0.2% consensus. On a year-over-year basis, core PCE stood at 3.3%, in line with expectations.
The softer inflation readings come on the heels of the Federal Reserve's decision to hold interest rates steady at its July meeting, keeping the target range at 3.50% to 3.75%. Markets are now pricing in a roughly 64% probability of a 25-basis-point rate hike at the central bank's September meeting, according to LSEG data.
Earnings Season Remains Strong Despite Headwinds
Corporate earnings have largely held up well this reporting season. With nearly half of S&P 500 companies having reported second-quarter results, 85.2% have beaten profit expectations, well above the historical average beat rate of 68%. Starbucks was among the notable gainers after raising its full-year sales and profit outlook. Qualcomm, however, traded lower after forecasting fourth-quarter profit below analyst estimates and warning of a faster-than-expected decline in revenue from Apple-related business.
Investors are also awaiting quarterly results from Apple, Amazon, and Coinbase after Thursday's market close, which could further shape sentiment. The broader market's recovery follows a brutal Wednesday session in which the Dow tumbled more than 1,100 points and the Nasdaq 100 entered correction territory, triggered by the Fed's decision and ongoing concerns about chip stocks. For context on that sell-off, see our coverage of the Dow's 1,152-point plunge.
Outlook
While Thursday's rally suggests that AI optimism is far from dead, the divergent reactions to Microsoft and Meta highlight the market's selective approach to tech stocks. The combination of slowing GDP growth and easing inflation presents a mixed picture for the Fed, which remains focused on taming price pressures without tipping the economy into recession. Treasury yields remain elevated, with the 30-year bond yield hitting its highest level since 2007 after the Fed meeting, reflecting lingering inflation concerns.
As earnings season continues and the Fed's next move comes into sharper focus, investors will be watching closely for signs that the AI-driven growth story can withstand higher interest rates and a cooling economy.
This article is for informational purposes only and does not constitute financial advice.
