Major U.S. indexes fell sharply after the Federal Reserve held interest rates steady despite three officials favoring an increase, while renewed pressure on semiconductor and artificial intelligence stocks pushed the Nasdaq 100 into correction territory.
By yourNEWS Media Newsroom
Wall Street suffered a broad selloff Wednesday as investors reacted to the Federal Reserve’s decision to leave interest rates unchanged, growing concerns that inflation could force another increase in September and a deepening retreat among artificial intelligence-related stocks.
The Dow Jones Industrial Average fell 1,129.03 points, or 2.14%, to close at 51,618.29, according to preliminary data. The S&P 500 lost 111.36 points, or 1.50%, finishing at 7,317.42, while the Nasdaq Composite declined 420.02 points, or 1.68%, to 24,460.08.
The S&P 500 ended at its lowest level in approximately one month. The Nasdaq remained about 9% below its June record, while the Nasdaq 100 fell 1.8% and closed more than 11% below its June peak, formally entering correction territory. The index had approached the correction threshold Tuesday but avoided closing below it.
The decline accelerated after the Federal Reserve kept its benchmark interest rate within a range of 3.50% to 3.75%, a decision that had been widely anticipated. The vote nevertheless revealed a more divided central bank than markets had expected, with three of the 12 members of the Federal Open Market Committee preferring a quarter-percentage-point increase.
Investors have become increasingly concerned that the Fed may be falling behind inflation after price growth remained above the central bank’s target for more than five years. Inflation had been accelerating until last month as fighting in the Middle East drove global fuel and food prices higher, and the renewed rise in crude oil has increased expectations that policymakers may tighten monetary policy at their September meeting.
“The Fed held pat, as expected,” said Ryan Detrick, chief market strategist at Carson Group.
“The bigger question now, though, becomes, how much pressure will they have to hike in September?” Detrick continued. “Inflation is running hot, and with surging crude oil, the market expects the next hike to indeed be in September.”
Federal Reserve Chairman Kevin Warsh told reporters that investment in artificial intelligence was helping establish the foundation for future economic growth. His comments came as investors continued questioning whether the enormous sums being committed to AI infrastructure will generate sufficient returns or instead weaken corporate cash flow.
Microsoft and Meta Platforms were scheduled to release quarterly results after the closing bell. Both stocks have declined during 2026 as investors reassess the durability of the AI investment boom and examine whether spending on data centers, advanced processors and related infrastructure can continue without pressuring profits.
Concerns have also grown over the increasingly interconnected nature of AI investments among major U.S. corporations. Companies are directing billions of dollars toward the emerging technology, sometimes through overlapping partnerships and financing arrangements, while shareholders question whether the spending is coming at the expense of free cash flow.
Competition from China has added another source of pressure. Chinese companies are pursuing advances in semiconductor development while releasing lower-cost artificial intelligence models that could challenge U.S. firms whose valuations depend on continued technological leadership and strong pricing power.
Semiconductor stocks extended their recent decline after South Korean chipmaker SK Hynix reported a sixfold increase in quarterly profit that still failed to meet elevated investor expectations. Its shares dropped 10%, contributing to a 5.3% decline in the Philadelphia Semiconductor Index. The index posted its fifth consecutive losing session.
Vertiv, which provides infrastructure used in data centers and AI systems, also fell sharply after reporting quarterly revenue below expectations. The weakness reinforced concerns that enthusiasm surrounding AI infrastructure spending had pushed some company valuations and earnings expectations too high.
The technology selloff overshadowed projections for strong corporate profit growth. Analysts expect aggregate second-quarter earnings among S&P 500 companies to rise approximately 40% from the same period one year earlier, with AI-related companies accounting for much of the increase, according to LSEG I/B/E/S.
Despite the market’s recent decline, the S&P 500 continued trading at about 20 times expected earnings, slightly above its 10-year average of 19. That valuation left stocks vulnerable to disappointment as investors awaited results from some of the companies most closely associated with the AI expansion.
Performance outside the technology sector was mixed. Ford Motor rose after increasing its annual profit forecast for the second time this year. Visa also advanced after quarterly earnings exceeded expectations, supported by travel spending associated with the World Cup.
Lennox moved sharply lower after the heating, ventilation and air-conditioning company reduced its annual profit outlook.
Wednesday’s decline reflected a combination of monetary policy concerns and weakening confidence in the technology sector that had previously driven much of the market’s advance. Although the Fed’s decision itself was expected, the three dissenting votes reinforced the possibility that policymakers may raise rates if energy costs keep inflation elevated.
The selloff left investors looking toward upcoming earnings reports and the Fed’s September meeting for clearer evidence about whether corporate profits can support current valuations and whether interest rates will need to rise again.
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