US stock indexes closed lower on Wednesday, but were able to recover some of their losses after encouraging remarks from Federal Reserve Chairman Jerome Powell. As expected, the Fed left its key interest rate unchanged, giving the market a signal of continued stability.
Tech giants took the brunt of the blow. The S&P 500 index felt pressure from the high-tech sector (.SPLRCT), and Nvidia (NVDA.O) shares lost 4.1% of their value. Microsoft (MSFT.O) shares also fell by 1.1%, continuing a downward trend that began after the emergence of Chinese company DeepSeek, which presented its own artificial intelligence models. The new developments turned out to be more economical and efficient even on less powerful chips than those used by OpenAI, which worried investors.
After the publication of the Fed's decision, the stock market showed an additional decline: the Nasdaq index fell by more than 1% during trading. The US central bank changed its rhetoric on inflation, no longer declaring progress in reducing it, but only noting that price growth remains at a high level. At the same time, the decision to keep the rate at the current level did not come as a surprise to investors. Earlier in 2024, the regulator cut the interest rate three times, reducing it by a total of one percentage point. However, now the Fed is signaling a more cautious approach, leaving markets waiting for further steps.
US stock indices managed to partially recover from the decline, when the head of the Federal Reserve, Jerome Powell, began his speech at a press conference. His restrained but confident statements helped to reduce panic among investors. He noted that the regulator does not need to rush to revise monetary policy, and the current course remains flexible enough to manage economic risks.
"Powell is a master at calming the markets," said Jake Dollarhide, CEO of Longbow Asset Management. According to him, a strong economy gives the Federal Reserve room to make balanced decisions, which has a positive effect on investor sentiment.
However, despite this, leading stock indices closed the session in the red. The Dow Jones Industrial Average (.DJI) fell 136.83 points (-0.31%) to close at 44,713.52. The S&P 500 (.SPX) lost 28.39 points (-0.47%) to close at 6,039.31, and the Nasdaq Composite (.IXIC) fell 101.26 points (-0.51%) to close at 19,632.32.
The Federal Reserve hasn't thrown any surprises at the market, Peter Cardillo, chief market economist at Spartan Capital Securities, confirmed. He said the lack of surprises in the Fed's rhetoric was expected, and the markets have taken it in stride. However, Powell refrained from making predictions about Donald Trump's economic policies, noting that it is too early to talk about their consequences. The central bank intends to take a wait-and-see approach to assess the possible impact of new initiatives on the economy.
The main concerns of market participants are related to the tariffs proposed by Trump. Economists believe that these measures could increase inflation and create additional obstacles to lowering interest rates. At the same time, the Fed has not given clear signals about when exactly the next reduction in borrowing costs might occur, which leaves markets in a state of uncertainty.
In the coming weeks, investors will continue to closely monitor macroeconomic indicators and statements from the regulator in order to better understand the possible further steps of the Federal Reserve.
A key event for the further direction of the market will be the publication of the consumer price expenditure index (PCE), which is scheduled for Friday. This indicator is considered one of the most important indicators of inflation, which the Fed uses when making decisions on monetary policy. Investors are hoping the data will provide more clarity on future rate dynamics.
Amid a broader market decline, shares of cloud services company F5 (FFIV.O) soared 11.4%. The surge came after the company gave an upbeat second-quarter revenue forecast and beat expectations for its first-quarter profit. The strong gains suggest that demand for cloud technology is continuing despite the turbulence in the tech sector.
Meanwhile, Microsoft (MSFT.O) shares were under pressure. The company's shares fell 4.5% in over-the-counter trading after giving a disappointing outlook for its cloud business. Investors are concerned about the high costs of developing artificial intelligence, uncertainty about future revenue from the technology, and growing competition from Chinese AI developers offering cheaper solutions.
The decline was another sign that even tech giants are struggling in a competitive and uncertain global marketplace.
Microsoft CFO Amy Hood said Azure could grow in the 31% to 32% range in its fiscal third quarter, below the 33% forecast. The numbers were a disappointment to the market, as analysts had expected stronger momentum in cloud computing, a key driver of the company's future growth.
Azure revenue increased 31% in the quarter, but fell short of the 31.8% forecast by Visible Alpha. At the same time, Microsoft's capital expenditures reached $22.6 billion, beating analysts' average forecast of $20.95 billion.
At a conference with analysts, Microsoft CEO Satya Nadella emphasized that the company continues to invest in building powerful data centers needed to develop and scale artificial intelligence models. According to him, the priority remains not only technological progress, but also reducing the cost of AI solutions for customers.
"We are actively working on software optimization," Nadella said. "This applies not only to the technologies presented by DeepSeek, but also to many years of efforts to reduce the cost of GPT models in partnership with OpenAI." The head of the company also noted that significant improvements in algorithms have made it possible to significantly increase the efficiency of data processing, which is critical for the further implementation of AI in cloud services.
Despite high investments in the AI sector, Microsoft shares have added only 8% over the past year. This is significantly lower than the 29% growth of Alphabet and the 50% increase in the value of Amazon. However, investors still view the company as a key player in the AI industry.
According to LSEG, Microsoft trades at about 32 times expected earnings, slightly above its five-year average of 30 times. This indicates that the market has elevated expectations for future profits from the company's AI developments.
Despite pressure from competitors, Microsoft was able to beat market estimates. The company's revenue for the second fiscal quarter (ending in December) increased by 12%, reaching $ 69.6 billion, which is higher than the average analyst estimate of $ 68.78 billion.
In addition, earnings per share were $ 3.23, which was also higher than the forecast of $ 3.11 per share.
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