The Fed, Oil, and Big Tech: Three Days of Markets Without a Single Direction

Between July 29th and 31st, financial markets experienced a sequence of contrasting shocks. First, the Federal Reserve disappointed those seeking clear guidance on interest rates; then, tensions in the Middle East pushed oil prices back above a significant psychological threshold; finally, the results of major technology companies transformed Wall Street into a market dominated by extreme and selective movements. More than a simple shift from fear to optimism, it was a constant rotation between inflation, geopolitics, and artificial intelligence.

The Fed remains firm, but the market sees further increases

The Federal Reserve kept its benchmark rate in the range of 3.50% to 3.75% , but the decision was approved by an unusual 9-3 vote. Three members would have preferred an immediate quarter-point increase: a dissent that made the pause much more restrictive than the statement suggested.

Wall Street reacted with widespread selling. The Dow Jones lost 2.19% , the S&P 500 1.52% , and the Nasdaq 1.74% . The reaction was driven not only by the lack of a rally, but also by the difficulty of the new Fed Chairman, Kevin Warsh, in providing a clear path. Investors began to fear that delaying action could force the central bank to tighten monetary policy later.

Tensions have spilled over into bonds. On Friday, the 10-year Treasury hit 4.747% , while the 30-year rose to 5.25% , its highest in nearly two decades. The yield curve therefore signals not only higher rates for longer, but also doubts about the Fed's ability to consistently bring inflation back to its target.

Oil brings geopolitics back to the center

Energy has complicated the central bank's job. The resumption of US and Saudi attacks against Iranian-backed groups in Iraq, coupled with threats to regional vessels and infrastructure, has reopened the geopolitical premium on crude oil.

Brent crude jumped 7.91% , closing at $90.74 a barrel. The move was amplified by declining U.S. inventories and navigation difficulties in the Strait of Hormuz, while the alternative route through Bab el-Mandeb also remained vulnerable to Houthi attacks.

Oil has thus returned to being simultaneously a raw material, a consumer tax, and an indicator of geopolitical risk. Prices steadily approaching $90 make it more difficult to slow inflation, compress disposable income, and increase transportation and production costs. This combination explains why yields have remained high even during the stock market rebound.

Artificial intelligence divides Wall Street

The second major theme was the return of extreme dispersion among Big Tech. Meta reopened doubts about the sustainability of investments in artificial intelligence, indicating capital expenditures of between $130 billion and $145 billion . The problem wasn't revenue growth, but the pressure on cash generation: the market demands concrete evidence of the returns generated by new data centers.

Microsoft offered the opposite response. Better-than-expected forecasts for cloud computing and sales boosted the stock by more than 15% , adding approximately $450 billion to its market capitalization in a single session. Thanks to this move, the Nasdaq gained 2.78% and the S&P 500 1.66% on Thursday.

The same divide resurfaced on Friday. Amazon rose more than 15% after its best quarterly revenue growth in more than four years, while Apple fell 7.4% after reporting component supply constraints. There is therefore no single "AI trade": the market rewards those who demonstrate growth, monetization, and investment control, penalizing those with high costs or execution issues.

Weaker growth, inflation still uncomfortable

Macroeconomic data confirmed a mixed picture. US GDP grew at an annualized rate of 1.5% in the second quarter, below the 2.1% expected. The slowdown was primarily driven by imports and declining inventories, while consumption and investment in AI-related infrastructure remained solid.

Inflation also sent a mixed signal. The PCE index slowed to 3.7% annually and the core figure to 3.3% , but both remain well above the Fed's target. Furthermore, the reading was a snapshot of a period before the renewed surge in oil prices. The market therefore interpreted it as a fragile improvement, not the certain start of a lasting decline in prices.

Currencies and Asia: Interventions and Extreme Movements

On the currency market, the dollar underwent a sharp correction against the yen, falling to 158.34 after a move of about 3% , which traders attributed to intervention by the Japanese authorities. The action temporarily stemmed the Japanese currency's weakness, but did not resolve the structural gap between the two countries' monetary policies.

A negative signal for industrial raw materials came from China: the official manufacturing PMI fell to 49.2 , returning below the threshold separating expansion from contraction. Weak orders and domestic demand dampened the outlook for copper, iron ore, and other production-related materials.

In South Korea, on the other hand, the KOSPI recorded a record rebound of 17.91% , after technology stocks had plunged sharply in previous sessions. The move showed how exposure to semiconductors is amplifying any shift in AI expectations.

A stronger, but not more stable, market

The week ended with stock indices recovering, but risks remained elevated. Oil prices reflected geopolitics, the Fed pushed yields higher, and earnings only benefited a few technology companies. Gold also lost 1.26% on Friday, penalized by rising real rates despite international tensions.

The key point is that stocks, bonds, and commodities are reacting to different forces. As long as oil, inflation, and AI investments continue to move in opposite directions, indices can rise without the overall risk actually decreasing.