Tech stocks experienced a downturn on Wednesday, mirroring the subdued market sentiment following the Federal Reserve’s decision to maintain interest rates within the 4.25%-4.5% range. This decision, coupled with less-than-stellar earnings reports from major tech companies, contributed to the negative trend.
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The tech-heavy Nasdaq Composite Index declined approximately 0.5%, partially reversing Tuesday’s rebound rally. Similarly, the S&P 500 index and the Dow Jones Industrial Average decreased by nearly 0.5% and 0.3%, respectively.
Fed’s Decision and Powell’s Response
The Federal Reserve’s statement notably omitted language from its December statement regarding progress toward its 2% inflation target, simply stating that “Inflation remains somewhat elevated.” Federal Reserve Chair Jerome Powell later clarified this change as “language cleanup” rather than a shift in policy, leading to a slight market recovery.
Nvidia and Export Concerns
Beyond the Fed’s decision, Nvidia exerted downward pressure on the tech sector, with shares falling over 4%. A Bloomberg report suggested the potential for additional restrictions on the company’s chip exports fueled this decline.
Big Tech Earnings Disappointments
Following Wednesday’s closing bell, Big Tech earnings season commenced, with mixed results. Tesla’s quarterly performance generally missed Wall Street expectations, yet its shares saw a 3% after-hours increase. Conversely, Meta and Microsoft experienced share price declines after their earnings announcements. Meta’s sales forecast for the upcoming quarter disappointed investors, while Microsoft’s cloud revenue failed to meet expectations.
Meta’s stock slipped around 5% in after-hours trading due to weaker than anticipated first-quarter sales guidance and increased capital expenditure plans for 2025. IBM, however, experienced an after-hours surge of over 11% due to a positive full-year revenue outlook, exceeding estimates, and an increase in AI bookings. Tesla’s stock initially fell by as much as 6% before recovering to a 3% gain after hours, following its earnings and gross margin miss.
Microsoft’s stock declined after its cloud business fell short of revenue projections, despite beating overall expectations. This miss highlighted investor concerns following the recent DeepSeek-induced tech sell-off.
Additional Insights from Powell
Powell addressed several topics during the press conference, including:
- Cryptocurrency: He reiterated the Fed’s focus on banks serving crypto customers safely and soundly, emphasizing that the Fed is “not against innovation.”
- DeepSeek Sell-off: Powell downplayed the significance of Monday’s tech sell-off triggered by DeepSeek, stating that it did not constitute a substantial change in financial conditions.
- Labor Market: He observed that the labor market seems to have reached a sustainable and balanced level.
- Shelter Inflation: Powell noted the moderating shelter inflation as progress toward the Fed’s 2% inflation goal.
- Economic Forecasts: He acknowledged the “elevated uncertainty” in current economic forecasts due to significant policy shifts.
- Communication Clarity: Powell addressed the market’s reaction to changes in the Fed’s statement, clarifying them as “language cleanup” rather than a policy signal.
- Political Pressure: He confirmed having no contact with President Trump regarding demands for interest rate cuts.
The removal of the phrase “made progress” regarding inflation in the Fed’s statement initially spooked the markets. However, Powell’s clarification and strong corporate earnings from companies like IBM helped to mitigate some losses. The market remains sensitive to various factors, including geopolitical tensions, trade policies, and the performance of key tech companies. The coming weeks will be crucial in determining the overall direction of the market.
