Written by: Chaoxiang Research

The Federal Reserve's meeting this time was rather uneventful, maintaining interest rates unchanged, but there were three dissenting votes advocating for a rate hike, and Chair Powell refused to provide any forward guidance for the next steps. What truly impacted the market during the early hours was a single statement: Trump threatened to impose "heavy strikes" on Iran after they launched missiles at U.S. forces in the Middle East, causing the three major indexes to plunge sharply in the closing minutes. The Nasdaq 100 has retraced more than 11% from its June peak, officially entering a technical correction zone.

Chip stocks dropped for the fifth consecutive trading day, with Micron falling nearly 10% in a single day. The yield on the 30-year U.S. Treasury bond surged past 5.2% during the turmoil, hitting a new high not seen since 2007. After-hours financial results from tech giants were mixed, with Microsoft soaring over 8%, while Meta plummeted over 10% due to guidance that fell short of expectations.

Trump's sudden attack leads to a collective plunge in U.S. stocks

The S&P 500 fell 1.52%, closing at 7316.15 points. The Nasdaq dropped 1.74%, closing at 24442.94 points. The Dow Jones Industrial Average declined by 2.19%, ending at 51594.14 points. The Nasdaq 100 dropped 2.06%, with a cumulative drop of over 11% from its June peak, officially sliding into the correction zone.

Just before 3 AM Beijing time, the three major indexes were actually still rising. The real turning point came when Trump, in a media interview, stated that since Iran launched missiles at the U.S. military in the Middle East, it was "America's turn to retaliate." As soon as this statement was made, the three major indexes immediately reversed and began to fall sharply.

The research firm Bespoke reviewed historical data and found that typically, after the new Fed Chair holds their second press conference, there tends to be some selling pressure in the final trading minutes, which is not uncommon. However, today's decline was significantly sharper than historical patterns. To be fair, the accountability shouldn't rest solely on Powell.

After the news of the Iranian missile attack broke, Brent crude oil prices surged by 3.4% to near $87, while WTI rose about 4% to near $82, ending a three-day streak of declines.

Powell refuses to provide forward guidance; the 30-year Treasury hits 5.2%, a new high in 18 years

The Fed's decision maintained unchanged interest rates but included three dissenting votes for a rate hike, which is uncommon in recent times. At the press conference, when asked about the possibility of raising rates at the next meeting, Powell chose to sidestep the question, insisting on not giving the market any clear guidance. He even remarked that the recent rapid increase in Treasury yields has already "done a lot of the Fed's work," but changes in yields are merely the market's response to expectations about inflation and policy paths, and ultimately, the Fed needs to act to deliver on those expectations.

Meanwhile, the yield on the U.S. 30-year Treasury bond quietly climbed past the 5.2% mark, a level not seen since 2007. Those in the loop view this indirect approach as a practical calculation; Powell likely wants to hold off until September to reveal his hand. Scenario one: the situation in the Middle East calms down, and the rate hike question becomes moot, leading to a happy resolution. Scenario two: if inflation worsens over the next month and a half, Powell will have to face the music and announce the two words Trump hates to hear: rate hike, before the midterm elections.

Ultimately, how inflation plays out depends on Trump, not Powell. That day, he not only vowed to punish Iran, but also mentioned wanting to include tariffs on Iran in the sanctions bill for Russia that was previously pushed by the late Senator Graham.

Microsoft's earnings explode, but Meta's guidance disappoints

After-hours earnings reports presented two extremes. Microsoft's stock surged over 8% after hours, with Q4 revenue of $90.01 billion, up 18% year-on-year, significantly surpassing market expectations of $87.72 billion, and adjusted earnings per share of $4.74 also greatly exceeded forecasts. The growth rate of Azure cloud services reached its highest point since 2022, with annual revenue hitting $100 billion for the first time.

Conversely, Meta's story was entirely different, with its stock price declining over 10% after hours. Q2 revenue was $60.8 billion, a 28% year-on-year increase, which is not bad, but earnings per share of $6.18 were lower than last year's $7.14. The median revenue guidance for Q3 provided by the company also fell short of analysts' estimates, raising concerns among investors about the company's earnings quality and spending pace.

Qualcomm fell nearly 5% after hours, with both Q3 revenue and earnings per share declining year-on-year, and smartphone business revenue hitting the lowest level since 2021. The company also announced a price increase for processors starting in September. Lam Research saw its stock rise over 5% after hours, while Arm dropped over 3%.

Chip stocks fall for five consecutive days, Micron loses nearly 10% in one day

The Philadelphia Semiconductor Index plunged 5.33%, marking its fifth consecutive trading day of decline. Micron Technology opened high but fell sharply, closing down 9.94%, with its latest market capitalization sliding to $864.6 billion. SanDisk turned from gain to loss in the final moments, closing down 7.32%. Lumentum, a optical communication stock, fell 7.61%, with Intel and AMD both dropping over 5%.

Also on the decline were familiar names: Nvidia fell 3.55%, TSMC dropped 4.5%, Broadcom decreased 2.78%, and SK Hynix fell 2.6%. Data center liquid cooling concept stock Viavi Technologies fell over 17%, with Q2 revenue increasing 24% year-on-year, which isn't bad, but slightly below market estimates, highlighting that due to its massive rise in stock prices this year, even slight misses can lead to significant sell-offs.

Coca-Cola and energy stocks rise against the trend, Chinese concept stocks lead for three consecutive days

In contrast to the dire state of chip stocks, Coca-Cola rose 0.92%, setting a new all-time high, and energy stocks also rallied over 2% as tensions in the Middle East increased. Chinese concept stocks continued their strong performance for three days, with the Nasdaq Golden Dragon China Index closing up 1.73%. Cryptocurrencies performed steadily that day, with Bitcoin opening at $63853.49, up 0.2%; Ethereum opened at $1919.73, up 1.5%.

A single sentence crashes the market; emotions are more important than numbers

What’s most noteworthy about that day is the speed at which market sentiment shifted; the closing numbers became secondary. The market was in an upward trend before midnight, but a single sentence turned it into a late-market collapse, indicating that the current market's sensitivity to geopolitical risks has reached extreme levels; any minor disturbance could rewrite the entire trading day's trend within minutes.

Microsoft and Meta released entirely contrasting reports on the same day, perfectly illustrating the repeated pricing logic seen over the past few weeks; investors are no longer satisfied with revenue figures alone, as the real determinant of stock price direction is whether the balance between capital expenditure and output can be justified. Microsoft provided a clear answer with Azure's growth rate, while Meta left a question mark on this issue.

Powell's strategy of postponing decisions until September sounds appealing, but whether it will achieve its intended outcomes ultimately rests in Trump's hands, depending on what actions he takes regarding Iran and whether oil prices will stir up inflation rates once again.

The continued decline of chip stocks for five consecutive days also indicates that the trust crisis that first blew up in the storage sector has not yet truly settled down. Tomorrow's earnings reports from Apple and Amazon will be the next critical testing point.