By Karen Brettell
July 31 (Reuters) - U.S. stocks rose on Friday as strong earnings from Amazon and Microsoft drew investors back into the AI trade, while longer-dated Treasury yields hit new multi-year highs on fears that rising oil prices could fuel inflation.
Currency markets also stayed on alert for further intervention, a day after Japanese authorities stepped in to support the yen, according to a market source.
Microsoft on Wednesday forecast strong cash generation through fiscal 2027. Amazon
followed a day later with its strongest cloud growth in more than four years, reassuring investors eager for proof that massive AI spending is paying off.
"There were worries that Amazon's spending was just moonshot spending, that it's irresponsible spending, and (CEO) Andy Jassy just put those fears to bed," said Jake Dollarhide, CEO of Longbow Asset Management in Tulsa, Oklahoma.
The Dow Jones Industrial Average rose 0.53% to 52,485.74, the S&P 500 gained 0.70% to 7,489.81 and the Nasdaq Composite ended up 1.00% at 25,373.85.
Gains were limited by a more than 7% drop in Apple shares after a disappointing forecast showed that the iPhone maker was struggling to secure enough components as the AI-driven data-center boom strains global supply chains.
South Korea's battered KOSPI leapt 17.91%, mounting a record comeback after heavy losses earlier this week. The tech-heavy bourse, still about 30% off its all-time high, has become emblematic of the sharp swings in investor sentiment towards AI-related stocks.
MSCI's gauge of stocks across the globe rose 1.22%, to 1,120.59.
The pan-European STOXX 600 index fell 0.12%, while Europe's broad FTSEurofirst 300 index fell 0.09%.
HAWKISH FED SPEAK SENDS BOND YIELDS HIGHER
Longer-dated Treasury yields jumped after three Fed policymakers who had dissented in favor of a rate hike at this week's meeting made their case publicly on Friday for higher rates.
The Fed kept rates unchanged — an expected outcome that aligned with market pricing, which showed a roughly one-in-three chance of a hike. Uncertainty over the decision was unusually high, however, as traders adjust to Fed Chairman Kevin Warsh's preference for less forward guidance.
The yield on benchmark U.S. 10-year notes rose 4.51 basis points to 4.708% and reached 4.747%, the highest since January 2025.
The 30-year bond yield gained 4.39 basis points to 5.2509%, the highest since mid-2007.
Traders are now pricing in 69% odds of a rate increase at the Fed's September meeting.
Oil prices closed more than $1 per barrel higher, ending July with their biggest monthly gains since March, as concerns over global crude flows mounted on Iranian reports that some tankers were forced to turn back in the Strait of Hormuz.
"The shock absorbers in oil markets are dwindling fast, so a failure to de-escalate would be materially costlier than previous rounds of tension," wrote Teddy Bunzel, head of Lazard Geopolitical Advisory at Lazard Asset Management.
Shipments through the crucial Strait of Hormuz remain disrupted. The alternative route through the Bab el-Mandeb Strait has also come under attack from the Iran-backed Houthis, further worsening the outlook.
BOJ HOLDS RATES DAY AFTER INTERVENTION
The yen strengthened 0.22% against the greenback to 159.16 per dollar, following sharp gains on Thursday after Japan conducted yen-buying, dollar-selling intervention, according to a market source.
The U.S. Treasury also told several banks it may intervene in the yen market on Friday and that they should "stand ready for future action," a source familiar with the matter told Reuters.
The BOJ kept interest rates unchanged on Friday, but signalled its resolve to push up borrowing costs.
At a press conference, BOJ Governor Kazuo Ueda said inflation risks were skewed to the upside, and the central bank was prepared to speed up the pace of rate hikes should monetary conditions be accommodative.
Analysts note that intervention has had limited success in providing durable support for the yen, and say the currency's outlook is unlikely to improve unless the BOJ raises rates.
"The yen fundamentals and technicals are very poor. Intervention is not a credible, long-term solution," said Lauren van Biljon, senior portfolio manager, rates and FX, at Allspring Global Investments.
The dollar index, which measures the U.S. currency against a basket of peers including the yen and the euro, fell 0.12% to 99.95, with the euro up 0.02% at $1.1529.
Spot gold fell 1.26% to $4,050.69 an ounce.
(Reporting by Karen Brettell; Additional reporting by Noel Randewich, Niket Nishant, Sudeshna Ghoshal and Rae Wee; Editing by Susan Fenton, Kirsten Donovan and Aurora Ellis)
