Dow jumps 640 points as Microsoft, chip stocks power Wall Street rebound

• Microsoft exceeded earnings expectations with strong Azure growth and lower-than-expected capital expenditure guidance, easing concerns about AI investment profitability and triggering a semiconductor rally with stocks like Micron and AMD surging over 13%
• Treasury yields remained elevated near multi-year highs (30-year above 5.2%), while Q2 GDP grew only 1.5% (below 2.1% expectations) and market pricing for a September Fed rate hike dropped from 82% to 59%
• S&P 500 earnings are expected to grow about 40% year-over-year with AI-related companies driving much of the growth, though Meta declined 9% on weak free cash flow and guidance, showing continued investor scrutiny of AI spending returns

Market Summary: Wall Street Rebounds on Microsoft Earnings, Chip Stock Surge

Key Market Movements:

U.S. markets posted a strong rebound on Thursday, with the Dow Jones jumping 645 points (+1.3%), the S&P 500 gaining 1.7%, and the Nasdaq surging approximately 3%, breaking a six-session losing streak.

Main Catalyst:

Microsoft drove the rally after reporting quarterly results that exceeded expectations. The company delivered stronger-than-expected Azure cloud growth, forecast quarterly sales above estimates, and projected capital expenditures below analyst expectations while maintaining cash generation guidance through fiscal 2027. These results eased investor concerns about AI investment profitability.

Sector Performance:

Semiconductor stocks rallied sharply, with the iShares Semiconductor ETF (SOXX) up 8%. Micron Technology and AMD each surged over 13%, while SK Hynix jumped more than 17%. The momentum factor (MTUM) gained 5%.

Notable Decliners:

Meta Platforms fell 9% after reporting a 91% decline in Q2 free cash flow and issuing weak revenue guidance. Qualcomm declined on below-expectation Q4 profit forecasts.

Economic Data:

U.S. Q2 GDP grew at an annualized 1.5%, missing the 2.1% expectation due to trade deficit impacts. June inflation data showed moderation, providing some relief.

Fed Outlook:

Treasury yields remained elevated, with the 30-year near 2007 highs above 5.2%. Market expectations for a September rate hike dropped to 59% from 82% a week earlier.

Earnings Context:

S&P 500 aggregate earnings expected to rise approximately 40% year-over-year, with AI-related companies driving much of the growth. The index trades at around 20x forward earnings, slightly above its 10-year average.