By Johann M Cherian and Ragini Mathur
July 29 (Reuters) - Wall Street's main indexes dropped on Wednesday as investors awaited the Federal Reserve's monetary policy verdict against a backdrop of surging oil prices, while chip stocks remained under pressure ahead of Big Tech earnings.
Global markets have been volatile this month as investors questioned the sustainability of the AI spending boom after signs that major U.S. companies were deepening a web of AI-linked investments and continuing to funnel
billions into the technology at the expense of free cash flow.
The scrutiny comes as competition from China heats up, both in the race to develop advanced chips and as Chinese firms roll out cheaper AI models. On Wednesday, South Korean chipmaker SK Hynix's bumper quarterly results fell short of lofty investor expectations.
U.S.-listed shares of the company edged higher by 1.7%, while other chip stocks seesawed in volatile trading. Industry leader Nvidia was down 1%, while a broader gauge, the Philadelphia Semiconductor index, fell 1.6%.
"The pressure is shifting from spending plans to returns on investment. Investors want evidence that AI capex is generating revenues now, while also strengthening the future growth outlook," said Gina Martin Adams, chief market strategist at HB Wealth.
Offering some respite was data storage provider Seagate Technology, which climbed 5.4% after forecasting quarterly results above estimates.
Results from Microsoft and Meta are due after the bell, while Amazon.com and Apple are expected later this week. Traders will closely watch for signs that their billion-dollar AI investments were boosting earnings. Shares of the companies edged lower in early trade, except for Apple, which was up about 1%.
At 9:53 a.m. the Dow Jones Industrial Average fell 539.49 points, or 1.02%, to 52,207.83, the S&P 500 lost 27.62 points, or 0.37%, to 7,401.16 and the Nasdaq Composite lost 127.98 points, or 0.52%, to 24,747.36.
The industrials sector was the biggest loser on the S&P 500, with construction and mining equipment maker Caterpillar falling 3.6%.
Financials and consumer discretionary were down 0.5% and 0.3%, respectively, while the heavyweight technology sector edged lower for a fifth consecutive session.
Recently, tech concerns have prompted investors to focus on other areas of the market such as consumer staples and healthcare, which were up 0.2% each on Wednesday.
FED IN FOCUS
The Fed will announce its monetary policy verdict at 2:00 p.m. ET against the backdrop of crude prices soaring by 7% to $89.94 a barrel, as U.S. President Donald Trump said that the U.S. would respond to Iran's attacks in Jordan.
Traders see a 35.8% chance of a rate hike, according to LSEG data, following a report showing that price pressures eased in the prior month, but they are confident that rates will rise by at least 25 basis points by year-end.
Markets will scrutinize Chairman Kevin Warsh's comments after he said the central bank would avoid giving explicit guidance on future interest-rate moves.
Ford Motor gained 6.3% after raising its annual profit outlook for a second time this year. Procter & Gamble dropped 2.7% after forecasting slower revenue growth in fiscal 2027.
Declining issues outnumbered advancers by a 1.43-to-1 ratio on the NYSE, and by a 1.39-to-1 ratio on the Nasdaq.
The S&P 500 posted 15 new 52-week highs and one new low, while the Nasdaq Composite recorded 59 new highs and 81 new lows.
(Reporting by Johann M Cherian and Ragini Mathur in Bengaluru; Editing by Devika Syamnath and Maju Samuel)
