By Noel Randewich
July 29 (Reuters) - The S&P 500 stayed down on Wednesday after the Federal Reserve held interest rates steady, while AI-related chip stocks added to recent declines ahead of quarterly reports from Microsoft and Meta Platforms.
The Fed's widely expected decision to leave the benchmark interest rate in the 3.50%-3.75% range drew dissents from three of the 12 members of the policy-setting Federal Open Market Committee who "preferred" a quarter-percentage-point hike at this meeting.
Ahead
of the Fed's announcement, the benchmark S&P 500 hit its lowest level in a month, while the tech-heavy Nasdaq was down as much as 9% from its June record high.
Investors had mostly expected the Fed to keep rates unchanged. Inflation has been running above the central bank's target for more than five years, and up until last month it was accelerating as the war in the Middle East pushed up global fuel and food prices.
"Holding rates is the appropriate move in our view. We are cautiously optimistic about the inflation path and absent a data trigger, there is no harm in buying time until at least September," said Christopher Hodge, chief U.S. economist at Natixis.
Microsoft rose almost 1% and Meta Platforms was up 0.8%, with both companies set to report quarterly results after the bell. Their shares are down in 2026 as investors question the sustainability of their AI spending boom.
Investors worry that major U.S. companies are deepening a web of AI-linked investments and continuing to funnel billions into the emerging technology at the expense of free cash flow.
Meanwhile, competition from China heats up, both in the race to develop advanced chips and as Chinese firms roll out cheaper AI models.
AI-related chipmakers added to recent losses after a sixfold jump in SK Hynix's quarterly profit fell short of lofty investor expectations, sending the South Korean company's shares down 10%.
The PHLX chip index fell 2.2% to its lowest since early May.
AI infrastructure company Vertiv slumped 15% after missing quarterly revenue expectations.
The S&P 500 was down 0.24% at 7,410.98 points.
The Nasdaq gained 0.03% to 24,885.34 points, while the Dow Jones Industrial Average was down 1.30% at 52,062.32 points.
Analysts on average expect S&P 500 aggregate second-quarter earnings to jump 40% from a year ago, with AI-related stocks accounting for much of that growth, according to LSEG I/B/E/S.
Strong earnings forecasts and Wall Street's recent decline have left the S&P 500 trading at about 20 times expected earnings, just above its 10-year average of 19, according to LSEG data.
Ford Motor gained 4% after raising its annual profit outlook for a second time this year. HVAC solutions maker Lennox tumbled almost 19% after lowering its annual profit forecast.
Visa rose almost 1% after the company beat estimates for quarterly profit, helped by World Cup-fueled travel demand.
(Reporting by Johann M Cherian and Ragini Mathur in Bengaluru, and by Noel Randewich in San Francisco; Additional Reporting by Saeed Azhar; Editing by Devika Syamnath, Maju Samuel and David Gregorio)
