Wall Street Morning News: Ahead of the FOMC, markets are panicking, and AI hardware such as semiconductors, memory, and optical communications continues to face “valuation sell-off”

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The Dow Jones Industrial Average rose 1.03% overnight, the S&P 500 closed up 0.21%, and the Nasdaq Composite fell 0.22%. On one side, the market bought “old economy” cash-flow names such as Coca-Cola, Boeing, healthcare, financials, and industrials; on the other, it continued trimming crowded AI hardware trades like semiconductors, memory, and optical communications.

Ahead of the Federal Reserve decision and the earnings reports from tech giants, capital chose to “reduce duration, reduce crowdedness, and reduce narrative leverage.” The S&P 500 equal-weight index hit a new all-time high, suggesting the overall market breadth is not fragile; what is fragile is the hardware chain that had been pushed to the limit by the AI capex story.

The ceasefire narrative gets pierced by missiles—oil prices pick up a war premium again

Just when the market once thought an informal ceasefire between Iran and the US was taking shape, events took another sharp turn.

The US Central Command confirmed that Iran fired multiple ballistic missiles early this morning at US military bases in Jordan. Although all missiles were successfully intercepted, it marks the first time Iran has struck US military targets since the US paused attacks on Iran last Friday—challenging again the “risk cooling” bet the market had been making.

Meanwhile, Iran’s deputy foreign minister said publicly that if Oman cannot accept Iran’s proposed new route plan for the Strait of Hormuz, Iran will continue to close the relevant route(s) and has already made preparations to resume hostilities.

WTI crude and Brent crude rebounded at the open. In the day, they were up more than 4% at one point. Earlier, oil prices had fallen for three straight days.

Analysts cut gold price forecasts for the first time since late 2023

Even though geopolitical risk has warmed up again, gold has not seen a surge driven by safe-haven demand. Since gold hit a record high of $5,595/oz in January this year, the price has already pulled back by about 22%. Driven by rising expectations of energy-driven inflation and further rate hikes triggered by the Iran war, gold posted its worst quarterly performance since 2013 in the second quarter.

A fresh Reuters poll shows that analysts cut their forecast for future gold prices for the first time since late 2023. The survey expects the average gold price in 2026 to be about $4,509/oz, below the previous quarter’s forecast of $4,916; the 2027 forecast was also cut from $5,100 to $4,610.

Most institutions believe that after gold hit a record early this year, and as energy prices pull back and rate-hike expectations keep shifting, gold has entered a valuation adjustment phase. However, persistent central bank gold purchases worldwide and fiscal deficit pressure are still expected to limit downside room for gold.

Wall Street faces one of the most difficult-to-predict FOMC meetings in recent years

Data from the CME shows that open interest in Fed funds futures set to settle at this meeting has reached 967k contracts, a record high, reflecting that market disagreement has reached extreme levels in recent years. Currently, the market assigns a 69.5% probability that the Fed will keep rates unchanged, while the probability of a 25 bps hike remains as high as 30.5%. For the September meeting, the market is pricing a 56.4% probability of a cumulative 25 bps hike and a 20.2% probability of a cumulative 50 bps hike.

The newly appointed Fed chair, Kevin Wosch, is the biggest variable for the market. After taking office, Wosch reduced forward guidance and emphasized that the Fed should not commit to future actions in advance—leaving the market without the sense of safety of “basic pricing before the meeting” that existed during the Powell era.

Jonathan Pingle, UBS’s chief US economist, said he has never felt this uncertain about the upcoming rate decision in his 20 years of career; the last time he faced similar uncertainty dates back to when Bernanke had just become Fed chair. He believes Wosch lacks a policy track record, and that recent disagreements among Fed officials make it hard for the market to judge the future direction.

Although some institutions such as Castle Securities think there is a possibility of an unexpected hike—and even some argue for a 50 bps increase to build credibility against inflation—the market’s mainstream view still leans toward the Fed taking a “tough talk, soft action” strategy: maintaining hawkish language while delaying action.

AI hardware hits a “buyers’ strike,” with software and blue chips taking over—semiconductors break below key technical support

Overnight, US stock market funds continued pulling out from AI infrastructure chains such as semiconductors, memory, and optical communications, rotating into AI application software, Apple, Coca-Cola, Boeing, healthcare, financials, and industrials.

The Philadelphia Semiconductor Index closed down 4.49%. During the session it fell more than 6.5%, breaking below 10,800 and hitting the lowest level since May 5. It officially broke below the key technical support at 11,200. That level had been defended during the July 17 selloff, but now the technical picture has deteriorated: the 21-day moving average has crossed below the 50-day moving average, making the short-term bearish signal clear.

Memory stocks became the worst-hit area in the selloff. SanDisk fell more than 14%; Micron, SK Hynix ADRs, Seagate, and Western Digital all fell more than 10% at one point. The optical communications sector also faced pressure: Corning and Coherent both fell more than 10%.

Behind this selloff are three questions that truly matter to traders: whether AI hardware demand has been brought forward excessively, whether hyperscale cloud vendors’ capital expenditures could drag down free cash flow, and whether Nvidia and its related ecosystem have formed a “capital-circulation” financing closed loop.

Venu Krishna, head of US equity strategy at Barclays, said worries about financing uncertainty, rising capital expenditures, and the state of free cash flow at large tech companies have become the market’s focus.

Marija Veitmane, head of equity research at State Street, described it as a “spiraling selloff.” The market fears the sustainability of additional debt issuance and capital spending, with negative momentum building. But she also noted that based on already released earnings, end demand remains strong—potentially providing a buying opportunity for long-term investors at lower prices.

Specific project moves and stock price fluctuations:

• Memory stocks remain at the core of the selling: SanDisk fell more than 14%, with losses exceeding 10% for three consecutive trading days; the drop in late July exceeded 51%. Micron, SK Hynix ADRs, Seagate, and Western Digital also all saw drops of more than 10% at one point. In addition, Seagate Technology released an earnings report after the close that beat expectations: fourth-quarter revenue of $3.65 billion, above market expectations, and it was up nearly 9% at one point after the close.

• Optical communications bleeds in sync: Corning plunged more than 12%. The company’s third-quarter core sales guidance was slightly below Wall Street expectations, and the growth rate of its optical communications business has slowed compared with the prior few quarters. Coherent fell more than 10%, Lumentum fell more than 8%, Credo, Astera, and Micro-Point Technology fell nearly 8%, and Ciena fell more than 7%.

• AI software keeps outperforming the market: Workday rose more than 8%, ServiceNow and Adobe rose nearly 5%, and Salesforce rose more than 4%.

• Google up 2.19%: Reports say the company has committed to backstop a data center leasing project of about $44 billion, hoping to expand TPU chip sales and further compete for market share in AI infrastructure.

• Apple up 0.94%, and its intraday market cap first breaks above $5 trillion. The company plans to launch a new smart home hub driven by the updated Siri, a new Apple TV, and HomePod mini. It also announced a brand-new equipment leasing program in the US. The market has repriced Apple’s “relatively restrained AI investment” and strong cash-flow discipline as a scarce defensive asset.

• Nvidia closes up 0.25%: Jensen Huang publicly called for support of open-source-weight AI models, saying an open ecosystem is crucial for the security and competitiveness of the US AI industry. At the same time, the company also announced an investment in Safe Superintelligence of about $5 billion.

• SpaceX closes up 2.56%. Musk announced that Grok 4.6 will be released around August 7, with a model size of 1.5T, followed by the release of Grok 4.7 with a 2.1T size.

• New energy vehicle maker Lucid surges 21.54%: Saudi prince Alwaleed bin Talal invests $129.5 million to buy about 19.5 million shares of Lucid, lifting his stake to 5%.

• Coca-Cola closes up about 5% and sets another record high: Second-quarter comparable revenue was $13.37 billion, up about 6% year over year; net profit was $4.43 billion, both exceeding market expectations, and it raised full-year guidance.

• Boeing closes up about 4.8%: The company’s second-quarter free cash flow beat expectations, which the market sees as a sign that the turnaround in a difficult situation is continuing to move forward.

What to watch next:

• July 30 02:00 Fed interest rate decision: The mainstream expectation is still to hold steady, but the probability of a 25 bps hike remains around 30%. If the Fed unexpectedly hikes, the dollar and US Treasury yields could rise rapidly, putting pressure on technology stocks, semiconductors, and high-valuation growth stocks; if it stays unchanged but the statement is still hawkish, the market will likely continue to price the risk of a September hike; if the statement emphasizes data dependence and easing employment conditions, risk assets may get a short-term breather.

• July 30 02:30 Fed Chair Wosch press conference: The market will parse his remarks word by word on energy inflation, AI capex inflation, employment slowdown, and the September policy path. If Wosch emphasizes fighting inflation credibility and the oil-price shock, long-end yields may test highs again; if he emphasizes data dependence and an assessment framework for policy, bonds and growth stocks could rebound.

• Major earnings: Earnings and earnings calls will be closely watched for Microsoft, Meta, semiconductor stocks including Qualcomm and Arm Holdings and Lam Research, Robinhood, SoFi, Starbucks, Mastercard, Shell, Altria, First Solar, Regeneron, and more. Market focus will be on Microsoft Azure cloud growth, Copilot commercialization, AI capex, and cloud profit margins; Meta ad growth, AI investment, Reality Labs losses, and the capex trajectory.

• July 30 09:00 Samsung Electronics full Q2 earnings: The market will focus on HBM, advanced process technology, foundry orders, capex, and details of collaboration with customers such as Broadcom. If Samsung confirms that AI storage demand remains strong, it could help stabilize the global memory supply chain; if its outlook on margins or capex is cautious, memory stocks such as SK Hynix, Micron, SanDisk, and Seagate may continue to be volatile.