Tech-heavy Nasdaq is now down 10% from its all-time high amid AI valuation jitters and war tremors. Latest Fed call didn’t help.

📉 Fed Day Selloff

  • Wall Street's Fed optimism didn't survive the closing bell. The Dow Jones Industrial Average tumbled more than 1,100 points, or 2.2%, marking its steepest one-day percentage decline since April 2025 as traders digested the latest from Fed’s new chair Kevin Warsh.
  • The S&P 500 finished down 1.5% after briefly turning positive immediately following the Fed announcement, while the Nasdaq Composite dropped 1.7%, officially entering correction territory after falling 10% from its all-time high.
  • A correction is Wall Street's term for a decline of at least 10% from a recent peak. It doesn't necessarily signal a bear market, but it often reflects investors reassessing valuations and economic risks.

🏦 Rates Stay Flat

  • The Federal Reserve left interest rates unchanged at 3.5% to 3.75%, but the decision came with a hawkish twist. Three policymakers dissented in favor of a rate hike, reminding investors that inflation remains far from yesterday's problem.
  • Warsh reaffirmed the Fed's commitment to bringing inflation back to its 2% target, while also suggesting that rising Treasury yields may already be tightening financial conditions enough to reduce the urgency for another immediate rate increase.
  • Meanwhile, conflict in the Middle East added another layer of uncertainty. With war tensions escalating alongside monetary policy concerns, investors suddenly had more than one reason to step away from risk assets.

💻 Big Tech Splits the Tape

  • After the closing bell, Microsoft helped lift sentiment by forecasting stronger-than-expected growth and revealing more than $130 billion in new data-center leases during the quarter. The stock jumped 9% in after-hours trading.
  • Meta headed the opposite direction. Shares fell 7.5% after disappointing investors with rising expenses, despite CEO Mark Zuckerberg defending the company's aggressive AI spending plans and long-term vision for autonomous AI assistants.
  • Early Thursday, US equity futures turned higher as traders weighed the Fed's message against fresh Big Tech earnings. Apparently, AI remains the market's biggest driver — it's just that investors are becoming much pickier about who gets rewarded.