The stock market faces a critical juncture as the Federal Reserve prepares to conclude its two-day meeting on Wednesday, July 29, with investors bracing for a decision that comes amid a deepening selloff in semiconductor stocks. The Fed is widely expected to hold interest rates steady at 3.5% to 3.75%, according to analysts and market-pricing data, but the broader market backdrop remains turbulent.
Semiconductor stocks have become the focal point of market weakness this month, with investors fleeing chip makers over concerns that artificial intelligence spending by major technology companies may not be sustainable. According to a Forbes analysis, hyperscalers’ AI capital expenditures jumped 67% to $650 billion, raising questions about whether such growth rates can continue. Memory chip stocks including SanDisk have been hit particularly hard, with SanDisk plunging 11% on July 28 alone, while broader semiconductor indexes have declined sharply.
The chip sector’s struggles reflect broader anxiety about technology valuations after months of extraordinary gains driven by artificial intelligence enthusiasm. As Reuters reported in July, hedge funds dumped semiconductor stocks for a fourth consecutive week as concerns mounted about whether the AI boom had become overextended. The Nasdaq and major semiconductor indexes have fallen significantly, with the Philadelphia Semiconductor Index experiencing steep declines throughout the month.
Market expectations suggest the Fed will maintain its patient stance at the July 28-29 meeting, according to CME Group data showing an overwhelming 97% probability of no rate change. This comes after the Federal Reserve held rates steady at its June meeting while signaling openness to a potential rate increase later in 2026 if inflation pressures persist. The central bank’s decision will be announced at 2 p.m. ET on Wednesday.
The timing of the Fed announcement matters because it arrives as the stock market grapples with the chip selloff’s ripple effects across the broader economy. When the Fed previously signaled openness to rate hikes in June, stock indexes tumbled, with the market sensitive to any suggestion of tighter monetary policy. A hold on rates could provide some relief, though investors will likely scrutinize the central bank’s language about future policy moves and its assessment of inflation trends.
Semiconductor weakness has proven contagious, pulling down broader technology stocks and raising concerns about market breadth. The selloff reflects a fundamental reassessment of whether the trillions of dollars being poured into AI infrastructure can generate sufficient returns to justify current valuations. Analysts note that despite recent declines, many major chipmakers remain well above their stock prices from the start of 2026, suggesting the market is still pricing in significant long-term AI growth even as near-term enthusiasm has cooled.
Sources
- CBS News — Fed rate decision expectations and July 29 announcement timing
- CME Lite Group — FOMC meeting schedule and probability of no rate change
- Forbes — AI capital expenditure growth and semiconductor selloff drivers
- Reuters — Hedge fund semiconductor stock sales and AI spending concerns
- Yahoo Finance — Semiconductor stock performance and price declines
- Federal Reserve — Interest rate levels and June meeting decision
