Dow jumps 230 points as Microsoft lifts AI sentiment, Nasdaq rebounds

US stocks opened higher on Thursday as investors weighed fresh economic data, strong corporate earnings and easing inflation pressures following the previous session's sharp market sell-off. 

Optimism surrounding Microsoft's quarterly results helped improve sentiment toward artificial intelligence investments, although concerns over spending remained after Meta Platforms reported a sharp decline in free cash flow.

The Dow Jones Industrial Average rose 239 points, or 0.46%, while the S&P 500 gained 0.91%. 

The Nasdaq Composite climbed 1.68%, recovering some of Wednesday's losses when the Federal Reserve's decision to leave interest rates unchanged triggered a broad market decline.

Markets also continued to monitor Treasury yields after the 30-year Treasury yield surged to its highest level since 2007 following the Fed meeting, reflecting lingering concerns over inflation and the outlook for monetary policy.

Microsoft boosts AI optimism while Meta disappoints

Microsoft led gains in trading after reporting stronger-than-expected quarterly results and issuing an upbeat outlook for cloud growth and revenue.

The software giant's shares climbed 15% after Azure cloud revenue exceeded expectations and the company projected current-quarter sales above Wall Street estimates. 

Microsoft also provided a capital expenditure outlook below analyst forecasts while indicating it expects to continue generating cash during fiscal 2027.

The results eased investor concerns that heavy spending on artificial intelligence infrastructure was eroding profitability.

The positive reaction extended across the semiconductor sector, with the iShares Semiconductor ETF (SOXX) rising more than 5% in trading after several sessions of steep declines.

Meta Platforms, however, moved sharply lower after reporting a 91% decline in second-quarter free cash flow and issuing weaker-than-expected revenue guidance. 

Shares fell nearly 10%, highlighting continued investor scrutiny of the financial impact of large-scale AI investments.

Qualcomm also traded lower after forecasting fourth-quarter profit below analyst expectations and warning that revenue from Apple-related business would decline faster than previously expected.

Investors are also awaiting quarterly earnings from Apple, Amazon and Coinbase after Thursday's market close.

Economic data points to slower growth and moderating inflation

Fresh economic data released Thursday presented a mixed picture of the US economy.

An advance estimate of second-quarter gross domestic product expanded at an annualized rate of 1.5%, missing expectations for growth of between 1.8% and 2.1%, reflecting slower economic momentum and a widening trade deficit.

Inflation data, however, provided some relief.

The Personal Consumption Expenditures (PCE) price index declined 0.1% during June, matching expectations. 

Core PCE, which excludes food and energy prices, rose 0.1% from the previous month, below expectations for a 0.2% increase. 

On an annual basis, core PCE stood at 3.3%, in line with forecasts.

The softer inflation readings followed Wednesday's Federal Reserve decision to leave interest rates unchanged within the 3.50% to 3.75% target range.

Markets assess Fed outlook and earnings season

Despite the encouraging inflation data, investors remain focused on the Federal Reserve's next policy move.

Markets now assign roughly a 64% probability of a 25-basis-point interest rate increase at the central bank's September meeting, according to LSEG data.

The previous trading session saw the Dow Jones Industrial Average fall more than 1,100 points, while the Nasdaq 100 entered correction territory after markets reacted negatively to the Fed's policy announcement and uncertainty surrounding the future path of interest rates.

Corporate earnings have generally remained resilient. 

According to LSEG IBES data, nearly half of S&P 500 companies have reported second-quarter results, with 85.2% exceeding analyst profit expectations, well above the historical average beat rate of 68%.

Among other movers, cybersecurity company Fortinet gained after raising its annual revenue forecast, while Starbucks advanced after increasing its full-year sales and profit outlook.