By Johann M Cherian and Ragini Mathur
July 29 (Reuters) - The S&P 500 and the Nasdaq were set for a subdued opening on Wednesday as investors awaited the Federal Reserve's monetary policy verdict against a backdrop of simmering Middle East tensions, while chip stocks struggled ahead of Big Tech earnings later this week.
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, the rout extended from Asia through Europe after South Korean chipmaker SK Hynix's bumper quarterly results fell short of lofty investor expectations.
U.S.-listed shares of the company dipped 1.6% in premarket trading, while other chip stocks seesawed in volatile trade. Nvidia was flat, Intel climbed 0.7%, Applied Materials dropped 3.2% and Sandisk dipped 1.2%.
"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.
Data storage provider Seagate Technology was a bright spot, climbing 4.9% after forecasting quarterly results above estimates. KLA Corp, meanwhile, forecast stronger-than-expected first-quarter revenue, but its shares fell 9% as investors sought more.
Results from Microsoft and Meta are due after markets close, 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 struggled for direction.
At 8:35 a.m. ET, Dow E-minis were down 321 points, or 0.61%, and S&P 500 E-minis were down 2.5 points, or 0.03%. Nasdaq 100 E-minis were down 34.5 points, or 0.12%.
Tech concerns have pushed the Nasdaq to a three-month low, prompting investors to focus on other areas of the market such as consumer staples and healthcare. The blue-chip Dow is also at a two-week high, while the S&P 500 equally-weighted index hit a record high on Tuesday.
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 39.4% 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 following the decision to gauge his tone on monetary policy at a time when he has said that the central bank will avoid offering any guidance on interest rates.
Ford Motor gained 5.1% 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.
The second-quarter earnings season has broadly reflected healthy corporate performance, with 85.2% of the 169 S&P 500 companies that have reported earnings having surpassed expectations, LSEG-compiled data showed. Historically, 68% of companies have achieved that feat in a typical quarter.
(Reporting by Johann M Cherian and Ragini Mathur in Bengaluru; Editing by Devika Syamnath and Maju Samuel)
