Wall Street rebounds 0.5% ahead of FOMC and Big Tech earnings

The Dow Jones Industrial Average rose 0.5% to 52,209 as traders weighed a likely Fed rate hold against Big Tech earnings due Wednesday. The blue-chip index was supported by strength in Microsoft and Alphabet, while the broader S&P 500 edged up 0.02% to 7,413. The tech-heavy Nasdaq Composite fell 0.2% to 24,932, dragged by semiconductor losses in Micron Technology and SanDisk.

"The immediate reaction to the suspension of attacks in the U.S.-Iran war implies further equity upside when the conflict is fully over," said Louis Navellier of Navellier & Associates.

The rebound came as West Texas Intermediate crude plunged 8.1% to $82.04 a barrel after Iran agreed to pause strikes as long as Washington does the same, easing a key inflation risk that had pushed oil up roughly 20% for July. The 2-year Treasury yield declined 9 basis points to 4.322%, while the 10-year yield settled near 4.647%, both remaining near their highest levels since early 2025.

The dual catalysts arriving Wednesday — the Federal Reserve's interest rate decision and earnings from megacap technology companies — create elevated volatility risk for major indices. Futures markets price a 36% chance of a quarter-point rate hike to a range of 3.75% to 4%, up from 16% a week ago, as Fed Chair Kevin Warsh, a known hawk, presides over his second meeting. Alphabet, which last week raised its full-year capex budget to $205 billion and posted its first negative free cash flow quarter, is among the companies reporting.

The broader market's advance masked divergence beneath the surface. Mega-cap stocks Microsoft and Alphabet supported the Dow, while chipmakers extended their selloff, with Micron and SanDisk leading declines in the Nasdaq. The mixed action reflects uncertainty about how higher borrowing costs could affect the AI infrastructure build-out, which has increasingly relied on external capital.

Northwestern Mutual Wealth Management Chief Investment Officer Brent Schutte said the shift marks an important change for Big Tech. Several free-cash-flow-positive firms have tapped capital markets to fund spending, making them more sensitive to interest rates. "The rising expense also raises questions about whether companies deploying AI will realize benefits quickly enough to justify continued spending," Schutte said.

The Fed's decision, due at 2 p.m. Wednesday followed by Chair Warsh's press conference at 2:30 p.m., carries outsized importance given the lack of a Summary of Economic Projections this meeting. Traders will parse Warsh's language for clues on the September and October meetings, where futures price a 69.5% and 73.5% probability of a rate increase, respectively. Warsh, who served as Fed Chair Ben Bernanke's primary liaison to Wall Street during the 2008-09 financial crisis, has advocated for lower rates more recently despite his hawkish reputation.

The decline in crude prices, if sustained, could provide relief to consumers and help cool headline inflation readings that have remained stubbornly elevated. Capital.com Senior Market Analyst Daniela Hathorn noted that shipping risks through the Strait of Hormuz and continued disruption in the Red Sea mean energy markets remain vulnerable to fresh headlines.

This article is for informational purposes only and does not constitute investment advice.