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.

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.