Thursday saw improved sentiment across global markets, with U.S. stock futures pointing higher after Microsoft's strong quarterly results boosted investor confidence. The company's performance suggests that massive corporate investments in artificial intelligence are beginning to yield returns, temporarily overshadowing renewed inflation concerns that are weighing on long-dated U.S. Treasury bonds. Apple and Amazon.com are set to report their earnings after the closing bell. As of writing, Dow Jones futures are up 0.57%, S&P 500 futures have gained 0.74%, and Nasdaq 100 futures are leading with a 1.50% advance. The MSCI All-Country World Index, after two consecutive days of decline, edged up 0.11%. In Europe, the Stoxx 600 index is trading 0.48% higher.
The AI narrative continues to face turbulence. Microsoft shares are surging 8.6% in pre-market trading after its cloud computing business posted its fastest growth in four years, while the company also managed to keep a lid on spending. Traders are now awaiting Amazon.com's earnings report. The market is currently in a sensitive phase, as some of the largest stocks that previously benefited most from the AI rally have experienced significant pullbacks, stoking investor concerns. South Korea's KOSPI index fell 1.23%, marking its third consecutive session of losses. "We don't think the AI story is over, but it's clear there will be some bumps along the way," said Sanjiv Tumkur, head of equity research at Rathbones.
Signs are emerging that the recent sell-off may be nearing its end. An exchange-traded fund tracking the Philadelphia Semiconductor Index is up 1%, suggesting that the index's 16% decline over five trading sessions might be bottoming out. Claudia Panseri, chief investment officer for France at UBS Wealth Management, noted, "Overall, the U.S. tech earnings season has been good, but there is clearly a rotation happening from chip stocks to large cloud computing companies. Semiconductor stocks, even when they beat expectations, are rarely able to sustain their gains." While Microsoft's results were well received, Meta Platforms, Inc. saw its shares fall 8.8% after issuing a disappointing revenue forecast. The market will get a further look at the health of mega-cap tech companies through the earnings reports of Amazon.com and Apple after the close.
Chip stocks, which have been battered recently, received a boost following Samsung Electronics' report that its chip profit surged over 250 times and its forecast that memory chip shortages will worsen. This comes as Microsoft and Meta Platforms, Inc. show divergent pre-market performances. "We are seeing that some hyperscalers want to keep investing more, but if they can't justify those investments with profit growth, the market punishes them," said Rory McPherson, head of investment management at Magnus Financial Discretionary Management. "Microsoft's case is different. It didn't exceed its previously stated spending plans, and its cloud business is still growing. That will be a key point, especially for Amazon.com." Investors are navigating a complex environment, balancing the volatility of AI trades after a strong run, sharp moves in oil prices, and limited guidance from the Federal Reserve on policy direction.
Bond yields are surging as investors question the Fed's ability to control inflation. There is growing concern that Fed Chair Kevin Warsh cannot contain inflation, which has been above the 2% target for five years. Meanwhile, the market is seeking evidence that the massive investments in AI are yielding real returns. The yield on the 30-year U.S. Treasury bond rose to 5.237% in Asian trading, its highest level in 19 years. Yields across the curve are climbing: the 2-year yield is up 4.9 basis points to 4.283%, and the 10-year yield has risen 7.8 basis points to 4.699%. After the Fed's "hawkish hold" on rates, short-term yields ended lower on Wednesday while long-term yields rose, steepening the yield curve. This trend is continuing, with long-dated yields outpacing short-dated ones. European government bond yields are also rising, with the German 30-year yield reaching a two-month high. LSEG data shows the German 30-year yield peaked at 3.687%, while the 10-year yield gained 3.2 basis points to 3.188%. "The market's reaction to the Fed's press conference suggests investors concluded the Fed may not be as tough on inflation as previously thought," said Chris Turner, an analyst at ING.
Internal divisions at the Federal Reserve are deepening. On Wednesday, three Fed policymakers voted in favor of a rate hike, leading some analysts to question whether the "good family fight" Warsh mentioned could become harder to manage if inflation pressures persist. "As we move into the second half of the year, we expect the central bank will have to face the reality that inflation remains a persistent problem," strategists at RBC stated. Holding rates steady may buy the Fed time until the September meeting, allowing it to review two new inflation reports. However, according to the CME FedWatch Tool, the probability of a rate hike in September has risen to 65.2%, up from 57.3% just a week ago. Meanwhile, there is skepticism about the effectiveness of a rate hike. "Raising rates in response to supply-shock-driven inflation is a mistake," said Brian Jacobsen, chief economic strategist at Annex Wealth Management. Typically, rate hikes are used to curb demand-driven inflation, but the biggest current inflation risk stems from potential disruptions to global oil supply if shipping through the Strait of Hormuz remains hampered. The U.S. dollar rebounded on Thursday after hitting a one-week low on Wednesday following the Fed's decision to hold rates steady. "The dollar was under pressure partly because the Fed chair avoided questions about how to achieve the 2% inflation target," said Michael Pfister, an analyst at Commerzbank.
The situation in the Middle East has added another layer of complexity to an already pivotal week for market direction, making it harder for investors to gauge the impact of rising oil prices on inflation. Oil prices are climbing again, with Brent crude up 0.7% to $91.40 a barrel, following U.S. retaliatory strikes against Iranian attacks on American forces. In other news, the European Union has launched a tender to establish up to seven "AI super-factories" across Europe, a key step in its push for technological sovereignty and its ambition to become an "AI continent." The initiative, led by industry, will be backed by up to €10 billion in public funding from the EU and member states, and is expected to leverage at least €20 billion in private investment across the bloc. The plan aims to expand Europe's AI computing capacity, providing infrastructure for startups, scale-ups, SMEs, industry, academia, and the public sector to train, infer, and fine-tune advanced frontier AI models. The AI super-factories will integrate advanced AI processors, software and cloud stacks, high-speed connectivity, and energy-efficient data centers. This plan will work alongside the existing network of 19 AI factories in Europe to further strengthen the region's technological leadership, resilience, and strategic autonomy.
In individual stock movers, Microsoft shares are up 9% in pre-market trading. The tech giant reported quarterly revenue of $90.01 billion, exceeding the market's expectation of $87.62 billion, according to Refinitiv. On a constant currency basis, its Azure cloud business grew 43%, beating the StreetAccount estimate of 40.2%. Microsoft also disclosed that Azure's full-year revenue for fiscal 2026 surpassed $100 billion for the first time. Conversely, Meta Platforms, Inc. shares are down nearly 9%. Refinitiv data shows the company posted earnings per share of $6.18 for the latest quarter, which was $1.04 below analyst expectations. The company also issued a Q3 revenue forecast of $61.0 billion to $64.0 billion, the low end of which falls short of the consensus estimate of $63.15 billion. Telehealth company Teladoc saw its shares plummet 18.5% after reporting Q2 revenue that missed expectations. FactSet-compiled analyst forecasts had revenue at $615.4 million, but the company reported $606.9 million. It also lowered its full-year revenue guidance. Norwegian Cruise Line shares are down 7% after the company cut its full-year earnings forecast. It now expects full-year earnings per share of $1.50, compared to its prior guidance range of $1.45 to $1.79. FactSet data shows analysts had expected earnings per share of $1.66. Bristol-Myers Squibb shares are up over 1% after the biopharmaceutical company beat both revenue and profit expectations. Q2 adjusted earnings per share came in at $2.04 on total revenue of $12.97 billion, well above the Refinitiv-compiled market estimates of $1.59 per share and $11.75 billion in revenue. Starbucks shares are up 6% after the coffee giant raised its full-year outlook and reported a 7.9% increase in same-store sales. Refinitiv data shows quarterly adjusted earnings per share of $0.85, beating the consensus of $0.66, and total quarterly revenue of $9.32 billion, above the expected $9.16 billion. Online used-car retailer Carvana is seeing its shares drop 10% after issuing a full-year revenue guidance range of $2.7 billion to $3.0 billion, which was below Wall Street expectations. Analysts at Deutsche Bank had forecasted $3.0 billion to $3.2 billion, while Morgan Stanley expected $4.45 billion. Chipotle Mexican Grill shares are up 6% after the company reported quarterly revenue and earnings that exceeded expectations. The company now expects low single-digit growth in full-year same-store sales, a significant upgrade from its previous guidance of flat same-store sales. Cybersecurity firm Fortinet is surging 12% after reporting strong Q2 billings performance that significantly beat analyst estimates. The company reported adjusted earnings per share of $0.90 on revenue of $2.05 billion, compared to Refinitiv expectations of $0.75 per share and $1.89 billion in revenue. Its Q3 guidance also came in well above market estimates. Semiconductor equipment maker Lam Research shares are up nearly 9% after the company reported better-than-expected fiscal fourth-quarter results. Excluding special items, earnings per share were $1.82 on quarterly revenue of $6.72 billion. Qualcomm shares are down over 4% after reporting mixed quarterly results. Refinitiv data shows adjusted earnings per share of $2.21, slightly below the consensus of $2.23, while total revenue of $9.95 billion came in above the expected $9.67 billion. Align Technology (maker of Invisalign) shares are down nearly 4% after reporting quarterly revenue and earnings that only slightly met expectations, according to FactSet. The company's Q3 revenue guidance range of $1.0 billion to $1.02 billion saw its low end fall short of the analyst consensus of $1.02 billion. Trading in MarketAxess was halted after the company agreed to be acquired by Intercontinental Exchange (the parent company of the NYSE). The offer is at $167 per share in an all-cash deal, valuing the company at over $5 billion. The offer represents a nearly 33% premium over Wednesday's closing price, and the transaction is expected to close in the first half of 2027. Medical technology company Baxter International shares are surging about 14% after a strong earnings report. The company reported adjusted earnings per share of $0.56 on revenue of $2.96 billion, significantly beating FactSet-compiled analyst expectations of $0.37 per share and $2.08 billion in revenue. The company also raised its full-year guidance for both earnings per share and revenue growth. Cigna shares are down nearly 4% after the release of its Q2 earnings. Refinitiv data shows adjusted earnings per share of $7.78 on revenue of $71.67 billion, surpassing market expectations of $7.60 per share and $70.34 billion in revenue. FactSet added that the company raised its full-year adjusted earnings per share guidance by $0.10, which still falls within the market's expected range. Anheuser-Busch InBev's U.S.-listed shares are down 3% despite the company's Q2 revenue and earnings beating expectations, as its gross margin trends appeared to plateau. The stock is still up nearly 33% for the year. Altria shares are down 3% after the tobacco company reported Q2 adjusted earnings per share of $1.48, missing the FactSet consensus estimate of $1.50. The company also raised its capital expenditure forecast for 2026 to a range of $3.75 billion to $4.5 billion, up from the previous plan of $3.0 billion to $3.75 billion. Sirius XM shares are falling 12% after the satellite radio company's earnings missed profit expectations. FactSet-compiled expectations were for earnings per share of $0.78, but the actual figure was $0.70.
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