Nasdaq-100 Posts Worst Month Since March 2025
Fed Holds but Hawkish Pressure Mounts
The Federal Reserve held the federal funds rate steady at the July FOMC meeting, maintaining the target range at 3.50%–3.75% for the fifth consecutive meeting. However, the 9–3 vote marked a notable shift from June’s unanimous decision, with Presidents Beth Hammack, Neel Kashkari, and Lorie Logan favoring a 25 bps hike. The shortened policy statement described economic activity as expanding at a solid pace, supported by strong productivity growth and capital investment, while acknowledging that inflation remains elevated partly due to energy and other supply-related shocks. Chair Warsh again avoided providing explicit forward guidance and reiterated that there is no “soft” inflation target, emphasizing that the Committee remains committed to returning inflation to 2%. He also noted that both nominal and real Treasury yields have risen materially across the curve since the June meeting, which tightened borrowing costs without a change in the policy rate. The latest data underscore the Fed’s challenge. June Nonfarm Payrolls rose by only 57,000, although the unemployment rate ticked down to 4.2%, while June headline and core PCE (Personal Consumption Expenditures) inflation registered 3.7% and 3.3% year-over-year, respectively. Meanwhile, Q2 GDP via the first estimate slowed to 1.5%, but private domestic demand grew a firmer 3.9%, suggesting underlying activity remains resilient. Looking ahead to September, market pricing via the CME FedWatch Tool implies roughly a 65% probability of a 25 bps rate hike.
Less Guidance, More Volatility in Treasury Markets
The Federal Reserve’s move away from forward guidance may be adding to volatility in Treasury markets, leaving investors to interpret each policy statement and data release with less direction from the Committee. The July FOMC meeting offered an early illustration. As Exhibit 2 shows, the 2-year Treasury yield swung in both directions during Chair Warsh’s press conference before ending the session lower, while the 30-year yield reversed higher to its highest level since 2007, closing the month at 5.27%. The result was a notable steepening of the curve, as softer short-term yields pointed to trimmed expectations for a near-term hike while the long end appeared to price greater compensation for uncertainty over the policy path and longer-run inflation. Warsh has treated this as a favorable development, noting that the inter-meeting rise in yields ranked among the largest of the past two decades and that markets are now responding to incoming data rather than to Fed commentary. For now, that uncertainty appears to be showing up in the shape of the curve as much as in the level of rates.
Is Beating Earnings No Longer Enough?
Second-quarter earnings have been strong. With 61% of S&P 500 companies having reported, the blended growth rate, which combines reported results with estimates for those yet to report, has risen to 47.4% from an estimated 23.2% at the end of June, the highest since 2021. A large portion of that increase traces to one-time gains at Alphabet and Amazon; excluding the two, blended growth would be 28.8%. Strong results, however, have not been consistently rewarded. Technology companies that beat EPS estimates underperformed the S&P 500 by an average of 3.3% around their reports through July 28, the weakest reading in the seven years of data shown, suggesting investors may be weighing the returns on record AI spending more heavily than the results themselves. The mega-cap reports appeared to follow that pattern. Alphabet posted a large EPS beat and 82% growth in Google Cloud revenue, but record capital expenditures left free cash flow negative for the first time as a public company, and the stock fell as much as 7%. Meta beat on revenue, missed on earnings, and saw free cash flow decline 91% as capex climbed, with shares off 8%. Microsoft and Amazon were received differently, and the distinction appeared to rest on the idea that the spending is converting into profitable growth. Microsoft’s Azure grew 43%, its fastest pace since early 2022, on capital spending in line with prior guidance, and the company rose 15.5% the following day for its largest one-day gain since 2008. Amazon’s AWS accelerated to 37% growth with segment operating income of $16.6 billion, a margin near 39%, and the stock gained roughly 15.3% the following day even as trailing free cash flow swung to a $7.6 billion outflow.
China: From Models to Memory
China appears to be re-emerging as a competitive force across both AI software and semiconductors. Chinese AI models have overtaken their US peers in token usage on OpenRouter (a platform that gives developers access to hundreds of AI models from providers around the world through a single interface) and now account for roughly 46% of routed tokens versus about 36% for US models, while narrowing the performance gap on widely used benchmarks. Many are open-weight, meaning developers can download, customize, and run the models on their own systems rather than relying entirely on a closed provider. China is gaining ground in memory as well. ChangXin Memory Technologies (CXMT), the country’s largest DRAM producer and now the fourth largest globally with roughly 8% of the market, closed 466% above its offer price in its July 27 Shanghai debut, becoming the most valuable company listed on China’s A-share market. The listing, alongside record quarterly results from SK Hynix that nonetheless fell short of consensus, appeared to contribute to a semiconductor-led selloff that triggered circuit breakers on the KOSPI, South Korea’s benchmark equity index, several times during the month, including back-to-back halts on July 28 and 29. CXMT still trails well behind in advanced high-bandwidth memory (HBM), where Samsung, SK Hynix, and Micron remain dominant, but rising Chinese capacity could weigh on conventional memory pricing, margins, and valuations across the industry.
Warranties & Disclaimers
Astoria Investment Management, previously known as Astoria Portfolio Advisors LLC, is an SEC registered investment adviser located in New York. As of the time of this publication, Astoria Investment Management held positions in GOOGL, GOOG, AMZN, META, MSFT, CXMT, MU, SK Hynix, and Samsung on behalf of its clients. There are no warranties implied. Past performance is not indicative of future results. Information presented herein is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. The returns in this report are based on data from frequently used indices and ETFs. This information contained herein has been prepared by Astoria Investment Management on the basis of publicly available information, internally developed data, and other third-party sources believed to be reliable. Astoria Investment Management has not sought to independently verify information obtained from public and third-party sources and makes no representations or warranties as to the accuracy, completeness, or reliability of such information. Astoria Investment Management may only transact business in those states in which it is registered or qualifies for an exemption or exclusion from registration requirements.
Facts Only
* The Federal Reserve held the federal funds rate steady at 3.50%–3.75% for the July FOMC meeting.
* Three members favored a 25 bps hike, while the vote was 9–3 against it among some participants.
* The policy statement described economic activity as expanding at a solid pace supported by strong productivity growth and capital investment.
* Inflation remains elevated partly due to energy and other supply-related shocks.
* June Nonfarm Payrolls rose by 57,000; the unemployment rate ticked down to 4.2%.
* June headline PCE inflation was 3.7% year-over-year, and core PCE was 3.3% year-over-year.
* Q2 GDP via first estimate slowed to 1.5%, but private domestic demand grew by 3.9%.
* Market pricing implied a roughly 65% probability of a 25 bps rate hike in September according to the CME FedWatch Tool.
* The 2-year Treasury yield swung during Chair Warsh’s press conference, and the 30-year yield reversed higher to its highest level since 2007, closing at 5.27%.
* Technology companies that beat EPS estimates underperformed the S&P 500 by an average of 3.3% through July 28.
* Alphabet posted an EPS beat and 82% growth in Google Cloud revenue but had negative free cash flow due to capital expenditures.
* Meta beat on revenue but missed on earnings, with free cash flow declining 91% as capital expenditures climbed.
* Microsoft’s Azure grew 43% on capital spending consistent with prior guidance.
* Amazon’s AWS accelerated to 37% growth with segment operating income of $16.6 billion.
* ChangXin Memory Technologies closed 466% above its offer price in its July 27 Shanghai debut.
Executive Summary
The Federal Reserve held the federal funds rate steady at 3.50%–3.75% at the July FOMC meeting, despite a 9–3 vote favoring a 25 basis point hike from some members. The policy statement noted economic activity is expanding at a solid pace, supported by productivity and capital investment, while acknowledging elevated inflation stemming from energy and supply shocks. The Federal Reserve reiterated its commitment to returning inflation to 2% without providing explicit forward guidance. Market indicators reflected this uncertainty; the 2-year Treasury yield swung during the press conference, and the 30-year yield reached its highest level since 2007, causing a steepening of the yield curve due to differentiated market expectations regarding near-term rate hikes versus long-term inflation concerns.
Second-quarter earnings showed a blended growth rate of 47.4%, up from an estimated 23.2% at the end of June. However, this growth was unevenly distributed, with technology companies that beat EPS estimates underperforming the broader S&P 500 by an average of 3.3%. Large-cap tech earnings reflected divergent trends: Alphabet experienced an EPS beat but faced negative free cash flow due to capital expenditures, while Meta saw revenue growth but a decline in free cash flow amid rising spending. Microsoft and Amazon demonstrated different patterns; Microsoft's Azure growth was strong, and Amazon’s AWS showed high operating income despite outflowing free cash flow.
In the context of China, Chinese AI models have gained ground, taking a larger share of routed tokens compared to US models, with many being open-weight. Chinese memory production is also gaining traction; ChangXin Memory Technologies experienced significant stock movement following its listing and quarterly results, although it remains behind in advanced HBM technologies where Samsung, SK Hynix, and Micron dominate.
Full Take
The narrative suggests a divergence between macroeconomic stability and underlying market volatility driven by uncertainty over the Federal Reserve's path. The Fed’s decision to hold rates while facing persistent inflation signals a tension between maintaining control and managing expectations, which is reflected in the Treasury curve’s steepening—short-term yields hinted at imminent hikes, while long-term yields priced in greater uncertainty regarding the policy trajectory. This dynamic implies that market focus shifts from explicit monetary policy pronouncements to interpreting the structure of risk embedded within yield movements themselves.
The earnings data reveals a pattern where headline growth masks internal performance imbalances. The relative underperformance of tech stocks despite strong reported figures suggests investors are applying a higher, more skeptical filter—perhaps weighting future growth narratives (like AI spending returns) more heavily than immediate reported profit figures. The contrasting performances of mega-cap firms like Alphabet and Meta illustrate that capital deployment strategies fundamentally alter financial outcomes; large-scale investment in technology drives cash flow dynamics more than mere revenue capture.
The developments in the Chinese market introduce a separate, structural shift where technological competition is driving economic re-evaluation, moving beyond simple macroeconomic indicators into the realm of technological ascendancy. The rise of open-weight AI models and domestic memory production signifies that global performance is increasingly defined by technological sovereignty rather than purely conventional economic growth metrics. This suggests that future valuation hinges less on GDP and more on the capacity for independent technological execution and control.
Bridge questions: If market uncertainty is priced into the yield curve shape, what signals should observers prioritize when assessing the trade-off between near-term monetary policy moves and long-term inflation persistence? How does the divergence in capital expenditure outcomes across tech giants fundamentally alter the assessment of future growth resilience? What structural implications arise when technological leadership (as seen in China's AI/memory sector) becomes a primary driver of financial metrics, potentially superseding traditional macroeconomic indicators?
Sentinel — Human
The text reads like a synthesized macroeconomic and technology market report, blending quantitative data with interpretative analysis, consistent with human financial journalism.