Fed Stays Put, But Big Tech Just Blew the Doors Off

It was one of those days on Wall Street where you could feel everyone holding their breath. The main event was the Federal Reserve's July meeting, and as expected, they kept interest rates right where they are. But honestly, the real action didn't even start until after the closing bell, when some of the biggest names in tech dropped their earnings and sent a jolt through the market.

Key Highlights

• ✓ The Federal Reserve held interest rates steady, but the decision wasn't unanimous.
• ✓ Microsoft (MSFT) and Meta (META) stocks surged after hours following blowout earnings reports driven by AI and cloud strength.
• ✓ U.S. GDP growth bounced back to a 3% annual rate in the second quarter, beating expectations.
• ✓ Fed Chair Jerome Powell remained non-committal about a September rate cut, stating "no decisions" have been made yet.
• ✓ Trade tensions simmered as a U.S. tariff deadline looms, with tariffs on Indian goods set to begin Friday.

When the dust settled on the regular trading day, the picture was a bit mixed. The Dow Jones Industrial Average (DJI) was down about 0.4%, and the S&P 500 (GSPC) slipped by a modest 0.1%. The tech-heavy Nasdaq Composite (IXIC), however, managed to buck the trend and close up by about 0.2%, hinting at the tech-fueled optimism to come.

The Fed Plays it Cool, But Not Everyone's on Board

So, let’s get into the main daytime event: the Fed. In a move that surprised almost no one, they left interest rates unchanged in their target range of 4.25% to 4.5%. During his press conference, Fed Chair Jerome Powell was careful with his words, emphasizing that it’s still the "early days" for seeing how potential tariffs might impact the economy. He made it crystal clear that "no decisions" have been made about a potential rate cut in September.

What’s really interesting, though, is that this decision wasn't unanimous. Fed Governors Christopher Waller and Michelle Bowman actually voted against holding steady. They both preferred to cut rates by a quarter of a percentage point right now. Waller had even made a speech on July 17 called "the case for cutting now," arguing that any inflation boost from tariffs would be "temporary" and that the central bank should just "look through" it.

This dissent shows a crack in the consensus at the Fed. While Powell is preaching patience, some of his colleagues are clearly getting antsy and believe it's time to act. It adds a whole new layer of drama to watch for ahead of their next meeting.

💡 What's Interesting: Despite a strong headline GDP number, EY's chief economist Gregory Daco described it as an "economic mirage." He pointed out that waning imports created a false sense of strength, while real domestic demand was actually slowing down.

A Tale of Two Economies: GDP, Jobs, and a Mirage?

Adding to the complexity for the Fed, the economic data that dropped Wednesday morning was surprisingly strong on the surface. For starters, U.S. GDP grew at a 3% annualized rate in the second quarter. That's a huge rebound from the 0.5% contraction we saw in the first quarter and well above the 2.6% economists were expecting.

On top of that, the ADP report showed that private employers added 104,000 jobs in July, cruising past the forecast of 77,000. These numbers prompted President Trump to take to social media, once again calling on the Fed to lower rates. But here’s the catch—that shiny GDP number might not be what it seems.

As EY chief economist Gregory Daco pointed out, the big bounce-back was largely because of a decrease in imports, which get subtracted when calculating GDP. When you strip out that "noise" and look at a metric like sales to private domestic purchasers, growth actually slowed to its weakest pace since 2022. It suggests that while the headline looks good, the underlying U.S. economy might be cooling off.

After-Hours Frenzy: Big Tech Steals the Show

Okay, now for the real fireworks. After the market closed, the tech giants came out to play, and they did not disappoint. Microsoft (MSFT) was first up, and its stock promptly climbed 6% in after-hours trading. The company posted a huge beat on both its top and bottom lines, fueled by incredible strength in its cloud and AI divisions. Its Intelligent Cloud segment, which includes the all-important Azure business, brought in a massive $29.8 billion in revenue, smashing analyst expectations.

Not to be outdone, Meta (META), the parent company of Facebook and Instagram, saw its stock rally as much as 10%! They reported earnings per share of $7.14 on revenue of $47.5 billion, leaving Wall Street's estimates in the dust. The company also raised its revenue forecast for the third quarter and signaled it would continue spending big on its AI infrastructure, which investors clearly loved to hear.

Even Robinhood (HOOD) got in on the action. The trading platform, famous for its role in the meme stock craze, reported stronger-than-expected results. Boosted by a surge in options trading, Robinhood’s net revenue hit $989 million. It’s been a wild ride for the company, with its stock up an incredible 185% so far this year, largely driven by hype around crypto and AI.

The Trade Deadline and Political Pressures

Lurking in the background of all this market action is the ever-present issue of trade. A major deadline is fast approaching this Friday, with President Trump threatening to impose blanket tariff rates if deals aren't struck. He has already stated that goods from India will face a 25% tariff starting Friday as talks between the two nations appear to have stalled.

Meanwhile, high-stakes US-China trade talks just wrapped up without an extension of their current tariff pause. According to Treasury Secretary Scott Bessent, President Trump will make a "final call" on the matter soon. Powell himself admitted the situation is far from resolved, saying, "It doesn't feel like we're very close to the end of that process." This ongoing uncertainty continues to cast a long shadow over the global economy.

In a slightly unusual turn, President Trump also recently visited the Federal Reserve for a tour of its renovation project, which Powell called "an honor." The visit wasn't without a little sparring over the project's cost, but it underscores the immense political pressure the central bank is navigating right now.

Conclusion

So, what’s the bottom line from a busy day on Wall Street? The Fed is holding its cards close to its chest, creating a bit of a holding pattern for the broader market as it waits for more clarity on inflation and tariffs. While the headline economic numbers look good, there's a compelling argument that the foundation isn't quite as solid as it appears.

But the undeniable story of the day belongs to Big Tech. The explosive earnings from Microsoft and Meta show that the AI revolution is not just hype—it's translating into massive revenue and profits. For now, it seems that even with economic uncertainty and trade tensions swirling, the relentless march of technology is giving investors plenty of reason to stay optimistic.