Fed holds rates steady as chip selloff drags Asian stocks lower

Asian equity markets extended a punishing rout on Wednesday as doubts over the returns from artificial intelligence spending rippled through semiconductor stocks, while the Federal Reserve held interest rates steady amid a complicated economic backdrop.

Chip Stocks Lead Decline Across Asia

South Korea's Kospi plunged as much as 9% on Wednesday, extending Tuesday's 11% decline and putting the index on course for a record two-day loss. SK Hynix ↘ 3.12% slumped as much as 20% after its earnings failed to meet expectations, while Samsung fell as much as 14% ahead of its results. Taiwan's Taiex and Japan's Nikkei 225 also declined as the selloff spread across the region.features.financialjuice+2

The MSCI ↗ 1.24% Asia Pacific Index fell 1.5% to its lowest level since mid-April. The downturn followed a brutal session on Wall Street, where the S&P 500 fell 1.5% and the Nasdaq 100 entered correction territory — defined as a 10% drawdown from its peak — after just 38 trading days.bloomberg+2

Fed Holds Rates at 3.5%-3.75%

The Federal Reserve concluded its two-day meeting on Wednesday by keeping its benchmark rate unchanged in the 3.5% to 3.75% range, a decision widely expected by economists. Fed Chairman Kevin Warsh said that markets "can be a good source of information but not a determinative or perfect source," according to Bloomberg.reuters+2

The hold came as higher energy prices and renewed tensions with Iran complicated the policy picture despite cooler inflation data. In the bond market, longer-dated Treasury yields surged, with the 10-year yield hovering near its highest levels since early 2025.kiplinger+1

AI Spending Doubts Fuel Rotation

The selloff reflects growing skepticism that the enormous capital expenditures on AI infrastructure by major technology companies will translate into proportionate revenue growth. The Philadelphia Stock Exchange Semiconductor Index fell 5% on Tuesday, dragged lower by sharp declines in Micron ↘ 2.22%, AMD Advanced Micro Devices, Inc. ↘ 1.47%, and Marvell ↘ 0.56%. The MSCI World Semiconductor Index has declined roughly 13% this month, its largest monthly drop since 2022.roic+1

Investors now await earnings from Meta Platforms ↗ 1.02% and Microsoft ↗ 0.52%, both of which reported after the U.S. close on Wednesday. Microsoft's results showed its fastest cloud-computing growth in four years, helping lift U.S. stock futures in early Asian trading Thursday, according to Bloomberg.bloomberg