Eventful day in the markets + community wins

The Federal Reserve held the federal-funds rate at 3.50%–3.75%, as expected. The surprise was the 9 to 3 vote, with 3 votes preferring a 25-basis-point hike.

Chair Kevin Warsh emphasized that the Fed remains firmly committed to its 2% inflation target and left the door open to future tightening. The Fed still sees solid economic growth and stable employment, but elevated inflation particularly from energy and other supply shocks remains the dominant concern.

The Wall Street saw today’s FOMC decision as a hawkish hold that increased concern about a possible September hike, especially if oil prices and inflation remain elevated.

Stocks sold off following the decision:

• S&P 500: approximately −1.5%
• Nasdaq: approximately −1.7%
• Dow: approximately −2.1%

The Nasdaq has now dropped over 9% from its June high. Weakness in AI infrastructure and semiconductor names added to the pressure ahead of Big Tech earnings.

The important takeaway is that the market is currently questioning two things simultaneously: whether rates may move higher and whether enormous AI investments are producing returns quickly enough.

Microsoft delivered the cleaner report compared to other Mag7 which had reported their Q2 earnings.

• Revenue: $90.0 billion, up 18%
• Adjusted EPS: $4.74, versus approximately $4.24 expected
• Microsoft Cloud revenue: $59.3 billion, up 27%
• Azure growth: 43%, ahead of the roughly 40% expected
• Microsoft 365 Copilot: more than 30 million paid seats

Azure also surpassed $100 billion in annual revenue for the first time. Microsoft shares initially rose roughly 3% after hours.

Why it matters: Microsoft is giving investors evidence that its infrastructure spending is translating into cloud revenue and paid AI adoption. The report supports the argument that AI capex can be justified when there is a visible monetization engine behind it.

Meta’s report was much more mixed:

• Revenue: $60.8 billion, up 28% and slightly above expectations
• EPS: $6.18, versus roughly $7.19 expected
• Operating income: down 8%
• Operating margin: 31%, down from 43%
• Costs and expenses: up 55%
• Free cash flow: only $784 million, down from $8.55 billion last year
• Q3 revenue guidance: $61 billion–$64 billion

The EPS miss included a $2.4 billion legal charge, but investors were also focused on the underlying spending trajectory. Meta narrowed its 2026 capex forecast to $130 billion–$145 billion, raising the lower end of the range. Shares initially fell about 5%, with some early after-hours indications showing a larger decline.

Why it matters: Meta’s advertising business remains strong, but investors are increasingly asking when its massive AI infrastructure spending will produce enough incremental profit to offset falling margins and weaker free cash flow.
The combined market message

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