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U.S. stocks retreated Thursday as a sharp decline in Microsoft weighed heavily on the broader market, undercutting optimism around recent earnings from the technology sector and reviving concerns about valuations and growth expectations. The pullback came as investors also assessed the Federal Reserve’s latest interest rate decision and guidance on the economic outlook.
The S&P 500 fell about 1.2%, reversing momentum from earlier in the week when the index briefly crossed the 7,000 mark. Technology shares led the decline, sending the Nasdaq Composite down more than 2%, while the Dow Jones Industrial Average slipped modestly by comparison.
Microsoft leads the market lower
Microsoft emerged as the primary drag on the S&P 500 after its shares dropped roughly 11%, marking the stock’s steepest one-day decline since early 2020. The sell-off followed the company’s latest earnings report, which showed slower growth in its cloud business during the fiscal second quarter.
The company also offered cautious guidance on operating margins for the upcoming quarter, prompting investors to reassess expectations for one of the market’s most influential stocks. As a key member of the so-called Magnificent Seven, Microsoft’s move had an outsized impact on market sentiment.
The decline rippled across the software sector, amplifying losses as investors questioned how artificial intelligence developments and competitive pressures could reshape the industry’s profit outlook.
Software stocks slide into deeper losses
Several major software companies followed Microsoft lower, even when earnings results exceeded expectations. Shares of ServiceNow dropped sharply despite reporting better-than-anticipated revenue and profit, while Oracle and Salesforce also moved lower.
The weakness pushed the iShares Expanded Tech-Software Sector ETF into bear market territory, leaving it more than 20% below its recent high. The ETF was on track for its largest single-day decline in months, highlighting how quickly sentiment has shifted within a previously resilient corner of the market.
The broad sell-off underscored how concentrated gains in megacap technology stocks have left markets vulnerable to sudden reversals when expectations are not met.
Mixed earnings offer limited relief
Not all earnings news was negative. Meta shares rose about 7% after the company delivered a stronger-than-expected sales outlook for the first quarter, offering a bright spot amid the tech downturn.
Outside of technology, Caterpillar shares edged higher after the industrial company reported quarterly results that surpassed Wall Street estimates, suggesting parts of the economy remain on solid footing.
Even with these pockets of strength, the overall tone remained cautious as investors focused on the outsized influence of technology earnings on major indexes.
Fed decision keeps uncertainty in play
Stocks entered the session following a relatively flat day after the Federal Reserve kept its benchmark interest rate unchanged in a range between 3.5% and 3.75%. Policymakers noted that economic activity continues to expand at a solid pace, while the labor market has shown signs of stabilization.
Despite the Fed’s steady stance, futures markets continue to price in potential rate cuts later in 2026, reflecting lingering uncertainty about inflation, growth and political developments ahead of midterm elections.
The absence of a policy surprise shifted attention back to earnings and economic data as the primary drivers of near-term market direction.
Copper’s rally adds another signal
In a notable contrast to equity weakness, copper prices surged to a new all-time high, climbing more than 8% in early trading. Often viewed as a barometer of economic health, the metal’s rally pointed to continued optimism around global growth and infrastructure demand.Shares of copper miners also advanced sharply, extending strong gains for the month and highlighting how commodity markets are telling a different story than equities.
As trading continues, investors are watching whether upcoming earnings from Apple and other megacap names can stabilize sentiment, or if volatility will persist as markets adjust to shifting expectations.
Source: CNBC and Reuters
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