Traders work on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., July 29, 2026. REUTERS/Brendan McDermid TPX IMAGES OF THE DAY
July 30 (Reuters) - U.S. stocks rallied Thursday, led by Microsoft's 15.5% surge, while 30-year Treasury yields scaled a 19-year peak after Federal Reserve Chair Kevin Warsh's comments on Wednesday unsettled investors, concerned that the Fed would be insufficiently vigilant about long-term inflation.
The yen also gained sharply, prompting speculation that Japanese officials intervened to shore up the beleaguered currency.
Microsoft carried the chip sector on its back after exceeded expectations for current-quarter sales and cloud growth and said coming capital expenditures would be less than what Wall Street anticipated. It also said it expects to keep generating cash through the just-started fiscal 2027.
Investors have been rattled by rising AI costs at big technology firms even as they report strong earnings. Negative cash-flow reports from Alphabet and Tesla last week sparked a selloff in AI-linked stocks, with chip stocks also under pressure as investors questioned high valuations.
The Dow Jones Industrial Average rose 1.2% to 52,209.57, the S&P 500 gained 1.7% to 7,437.99 and the Nasdaq Composite was up 2.8% at 25,122.18.
Microsoft's rally added $450 billion in market value to the company, the largest one-day dollar gain in history.
"Microsoft delivered yesterday, and maybe Microsoft is going to be able to move itself from the 'battleground' camp to be a 'trusted AI winner' stock," said Jed Ellerbroek, portfolio manager at Argent Capital Management.
The MSCI All Country World Price index rose 1.6% after earlier falling to its lowest level since June 11.
The pan-European STOXX 600 index rose 0.8%, while Europe's broad FTSEurofirst 300 index rose 0.8%.
South Korea's KOSPI fell 1.2% to end its third consecutive day in the red.
30-YEAR YIELDS HIGHEST SINCE 2007
Longer-dated Treasury yields extended Wednesday's sharp rise after the Fed's decision to hold interest rates steady raised fears that inflation — already running well above the Fed's target — could climb further.
The decision to leave policy on hold drew dissents from three of the 12 FOMC members, who had wanted a quarter-percentage-point hike instead. Fed Chairman Kevin Warsh's preference for less forward guidance has left traders even less certain of the Fed's next move.
Warsh noted that bond yields had risen notably since the Fed's last policy meeting, reflecting investors pricing in future rate increases. He welcomed that move, while adding that it did not mean the central bank needed to ratify it with action of its own.
"The strategy behind pulling back on forward guidance is forcing the market to take responsibility and enlisting the market in helping him do his job," said Thomas Urano, co-chief investment officer at Sage Advisory in Austin, Texas.
A recent uptick in oil prices pushed yields higher ahead of the Fed meeting, as fighting resumed in the U.S.-Iran war. Fed funds futures traders are now pricing in 64% odds of a hike at the Fed's September meeting.
The interest-rate-sensitive 2-year Treasury yield rose 0.17 basis points to 4.238% while the yield on benchmark U.S. 10-year notes increased 4.51 basis points to 4.667%.
Thirty-year yields were last up 6.62 basis points at 5.2092% and reached 5.2444%, the highest since mid-2007.
Oil prices settled lower after a volatile session, pulling back after a sharp few days of gains following the resumption of attacks between the U.S. and Iran.
Saudi Arabia has proposed plans for a maritime coalition to boost defense cooperation around the Red Sea. It is unlikely when a coalition would start to protect shipping.
U.S. inflation slowed in June, with the Personal Consumption Expenditures Price Index rising 3.7% in the 12 months through June, after an unrevised 4.1% gain in May — the largest increase since April 2023.
U.S. economic growth slowed in the second quarter due to the widening trade deficit, though other factors, including accelerating consumer spending and robust business investment in AI infrastructure, pointed to underlying strength.
SUDDEN YEN GAIN SPARKS INTERVENTION SPECULATION
The Japanese yen rallied suddenly on Thursday, sparking speculation that Japanese authorities had stepped in to steady the currency after it weakened to a 40-year low against the U.S. dollar.
“The further it falls the more likely intervention becomes as an explanation," said Nick Rees, head of macro research at Monex Europe. "It’s a fairly sizeable fall and there’s no other obvious catalyst and the timing makes sense, coming at month-end and after weak U.S. data. Although we won’t know for certain for a while.”
The Bank of Japan is expected to keep rates steady at 1% on Friday. After raising rates in June, a second successive hike would be unusual.
The yen was last up 2.53% against the greenback at 159.34 per dollar.
The dollar index , which measures the U.S. currency against a basket of peers including the yen and the euro, fell 0.84% to 99.94, with the euro up 0.57% at $1.153.
Sterling strengthened 0.73% to $1.3466.
The Bank of England kept interest rates on hold as expected, but a third policymaker backed a rate hike, citing renewed conflict between the United States and Iran.
Spot gold rose 1.11% to $4,110.19 an ounce.
Reporting by Karen Brettell; Additional reporting by Noel Randewich, Chuck Mikolajczak, Harry Robertson, Niket Nishant, Ankur Banerjee, Rae Wee, Sruthi Shankar and Ragini Mathur; Editing by Nick Zieminski and Nia Williams
Our Standards: