Microsoft's stock rose 14% on Thursday after forecast-beating results eased Wall Street's worries over AI spending, lifting major U.S. indices. At the same time, the 30-year Treasury yield climbed to its highest level since 2007, a day after the Federal Reserve left interest rates unchanged.
Microsoft's earnings beat lifts AI-linked stocks
Microsoft forecast current-quarter sales and cloud growth that beat expectations, guided capital spending below Wall Street estimates, and said it expects to keep generating cash through the just-started fiscal 2027. The results came after Alphabet and Tesla posted negative cash-flow reports last week, which had sparked a bout of selling in AI-linked stocks and pressured chip shares as investors questioned high valuations.
Sanjiv Tumkur, head of equity research at Rathbones, said the AI story is not over, adding "there's scope for bumps along the way".
Dow, S&P 500 and Nasdaq all rise
The Dow Jones Industrial Average rose 0.68% to 51,945.26. The S&P 500 gained 1.29% to 7,410.61, while the Nasdaq Composite added 2.43% to 25,037.38.
Elsewhere, the MSCI All Country World Price index gained 1.30% to 1,105.11, rebounding after earlier touching its lowest level since June 11. South Korea's KOSPI fell 1.23%, extending its slide to a third consecutive day, while Europe's STOXX 600 rose 0.88% and the FTSEurofirst 300 added 0.89%.
Fed hold sends 30-year yield to 19-year high
Longer-dated Treasury yields extended Wednesday's sharp rise after the Fed's decision to hold interest rates steady. That stoked fears that inflation — already running well above the Fed's target — could climb further. Three of the central bank's 12 policymakers dissented, preferring a quarter-percentage-point hike instead, and Fed Chairman Kevin Warsh's preference for less forward guidance has left traders less certain of the Fed's next move.
Warsh noted that bond yields had risen notably since the Fed's last meeting and welcomed the move, though he added it did not mean the central bank needed to ratify it with action of its own.
The 30-year yield rose 6.94 basis points to 5.2124%, touching 5.2444% intraday, the highest since mid-2007. The 2-year yield fell 1.28 basis points to 4.223%, while the 10-year yield rose 4.51 basis points to 4.667%. Fed funds futures traders are now pricing in 64% odds of a rate hike at the Fed's September meeting.
Data released Thursday showed the Personal Consumption Expenditures price index rose 3.7% in the 12 months through June, easing from an unrevised 4.1% gain in May, the largest increase since April 2023. Separately, U.S. economic growth slowed in the second quarter amid a widening trade deficit, though stronger consumer spending and AI-related business investment pointed to underlying strength.
Sources: Reuters via Yahoo Finance, Reuters via Investing.com
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