Review of July 29 U.S. Stocks: The Night the Fed Lost Credibility, Microsoft and Meta Taught All AI Believers a Lesson

Last night’s U.S. stock market was hands down one of the most heart-stopping decision days in recent memory.

On one hand, the new Fed Chair Kevin Warsh presided over his second FOMC meeting. Even as he kept stressing that “the fight against inflation must be relentless,” the long‑end Treasury market simply didn’t buy it. The 30‑year Treasury yield surged past 5.2%, hitting its highest level since 2007! The yield curve staged an aggressive “bear steepening” — big money is voting with its feet, voicing deep skepticism about the Fed’s determination to tame inflation.

On the other hand, tech earnings bombshells hit after the closing bell, dragging all three major indexes lower. The Nasdaq 100 dropped more than 10% from its all‑time high, officially slamming into correction territory on a technical basis. Yet underneath the AI capex firestorm, an exceptionally brutal divergence unfolded among Big Tech: Microsoft rallied in after‑hours trading, while Meta suffered a crushing blow.

With long‑end yields exploding just as the AI mega debt‑issuance wave crashes ashore, what exactly is the market panicking about?

I. Bond Market Turmoil: Why Long-End Treasuries Defy the Fed

Last night, the Fed held steady. At the press conference, Warsh was sharp-tongued, and three FOMC members even voted to hike rates in dissent. Yet long-end Treasury yields spun completely out of control: the 2-year yield fell 6 basis points, while the 30-year yield surged 10 basis points, and the 2s10s spread widened by 16 to 17 basis points.

1. Divisions and damaged credibility inside the Fed
   The decision came with three dissenting votes, which signals even deeper internal fractures heading into the September FOMC meeting. Many traders on the desk think Warsh actually came across as more dovish than expected. When reporters repeatedly pressed him—if you are dead set on a 2% inflation target, why are you doing nothing?—he simply could not give the market a convincing explanation.