Wall Street ended lower on Wednesday as the S&P 500 slipped and the Nasdaq 100 declined more sharply, with investors trimming a recent rally led by artificial-intelligence infrastructure. The pullback was reinforced by weaker-than-expected U.S. economic indicators, while select mega-cap technology and software names helped limit broader losses.
Stocks also reflected shifting expectations around interest rates, even as recent disinflation signals eased some pressure on yields. In commodities, crude oil fell after reporting on U.S. diplomacy toward Iran, while Treasury markets reacted to changes in inflation expectations.
Key takeaways
- Index performance: The S&P 500 closed down 0.22%, the Dow Jones Industrial Average fell 0.03%, and the Nasdaq 100 dropped 1.54%.
- Catalyst: Softer U.S. data—an ADP employment gain below expectations and a weaker ISM manufacturing report—dampened sentiment, alongside a selloff in chipmakers and AI infrastructure stocks.
- Market implication: With many investors focused on upcoming earnings strength and rate expectations, Wednesday’s rotation suggests leadership remains narrow even as large technology names show resilience.
- Rates and inflation: Ten-year Treasury yields rose modestly as inflation expectations firmed, though Fed Chair remarks helped stabilize the move.
- Energy: WTI crude fell more than 1% to a 4.25-month low on reports of progress in nuclear-related technical talks with Iran.
What drove the move
Wednesday’s downside pressure centered on the technology supply chain. Chipmakers and AI infrastructure stocks weighed on the broader market after the sector had rallied strongly over the prior two sessions, with investors taking profits and reassessing near-term momentum.
On the macro front, data released during the session pointed to a cooling in the U.S. economy’s pace. The Jun ADP employment change increased by 98,000, below the 120,000 expected by the market, indicating a weaker labor market tone. The Jun ISM manufacturing index fell 0.7 points to 53.3, also below expectations of 53.9, while the ISM “prices paid” sub-index dropped 9.1 points to 73.0, its lowest level in four months and weaker than the 77.5 forecast.
Investors also drew support from signs of easing price pressures and comments from Fed Chair Warsh, who said price risks have come down in recent weeks and that he remains determined to return inflation to the Fed’s 2% target. Separately, U.S. factory-price pressure appeared to soften after the ISM prices-paid gauge fell to a four-month low.
Market reaction across assets
Equity indexes finished mixed-to-lower despite pockets of strength. The S&P 500 fell from a one-week high, while the Dow retreated after previously reaching a new all-time high. Losses were described as limited by support from the Magnificent Seven and software stocks.
Futures pointed to weakness at the open as well: September E-mini S&P futures fell 0.21%, and September E-mini Nasdaq futures declined 1.57%.
In rates, September 10-year Treasury notes settled lower, with the 10-year yield rising 0.8 basis points to 4.473% after inflation expectations edged higher. The ten-year breakeven inflation rate rose to a one-week high of 2.256%, helping lift yields. However, the move was partially contained after the softer economic data and Warsh’s remarks prompted some short covering.
Outside the United States, European government bond yields were mixed. The 10-year German bund yield rose 1.9 basis points to 2.878%, while the 10-year UK gilt yield finished slightly lower at 4.756% after easing from a one-week high.
Commodity markets reflected geopolitical and supply-demand expectations. WTI crude fell more than 1% and closed at a 4.25-month low. Crude prices were pressured after a senior U.S. administration official said negotiators had “positive discussions” in Qatar and that progress was being made on technical talks with Iran. The Wall Street Journal also reported that President Trump decided against resuming a broad military campaign against Iran and indicated he was open to extending negotiations beyond the August 18 deadline.
Stock movers: chips versus mega-cap and software
Within U.S. equities, semiconductor and AI-adjacent names dragged on the session. The iShares Semiconductor ETF fell more than 6%. Individual weakness included KLA Corp down more than 1% and SanDisk down more than 10%, while several other chip-related companies—including Lam Research, Applied Materials, Micron Technology, Intel, and Marvell Technology—ended the day down more than 8% to 9%.
Nebius Group NV fell more than 17% to lead Nasdaq 100 decliners, while CoreWeave dropped more than 13% following news that Meta Platforms is developing plans for a cloud infrastructure business to sell access to AI computing power and models. Investors treated the development as a competitive or demand-structure risk for some AI infrastructure providers.
Meanwhile, strength in large technology names helped stabilize the market. Meta Platforms rose more than 8%, Microsoft gained more than 3%, and Apple, Tesla, Alphabet, and Amazon.com closed higher. Nvidia was an exception, down more than 1% amid the broader chipmaker weakness.
Software stocks provided another bright spot. Palantir Technologies rose more than 7%, and several enterprise-software companies gained more than 6%. Salesforce led the Dow’s gainers, rising more than 4%. On the tape, General Mills gained more than 8% after reporting Q4 adjusted EPS of 95 cents versus consensus of 80 cents, while FactSet Research Systems climbed more than 6% after posting Q3 adjusted EPS of $4.53 versus consensus of $4.43.
Bigger picture: earnings and the rate path
Even with Wednesday’s pullback, investors continued to anchor their outlook on earnings expectations. According to Bloomberg Intelligence, Q2 earnings are projected to increase by 23%, close to Q1’s already strong 30% growth, which the report said more than doubled the 12% analysts had expected. AI spending is expected to underpin results, with AI infrastructure stocks projected to contribute nearly 60% of S&P 500 earnings-per-share growth in Q2.
At the same time, rate expectations remained a key swing factor. The article noted markets were pricing a 27% chance of a 25 basis point rate hike at the next FOMC meeting on July 28–29. That backdrop helps explain why bond yields and inflation expectations mattered closely alongside equity-specific news.
Looking ahead, investors will likely focus on further progress on the earnings calendar and additional signals on inflation and labor-market conditions. With the next Fed meeting approaching, upcoming updates to rate expectations and any follow-through in corporate guidance will be critical for determining whether Wednesday’s rotation turns into a broader retreat or remains confined to the chip and AI infrastructure complex.
