US stocks faced a downward trend on Tuesday, weighed down by a drop in AI chip heavyweight Nvidia (NVDA), as investors eagerly awaited key earnings reports from tech giants Microsoft (MSFT) and AMD (AMD). The S&P 500 fell by 0.5%, while the tech-heavy Nasdaq Composite dropped approximately 1.3%. However, the Dow Jones Industrial Average managed to rise by 0.5%.

This week holds significant importance for the market, as investors closely monitor the Federal Reserve's interest-rate decision, the release of the July jobs report, and earnings announcements from four of the top megacap tech companies. These factors will play a crucial role in determining whether the recent stock pullback is coming to an end, while investors assess the impact of rate cuts and concerns surrounding the AI capabilities of Big Tech companies.

On Tuesday, semiconductor stocks, including Nvidia, experienced a lag, with Nvidia's shares declining by 7% by market close. Now, all eyes are on Microsoft's quarterly report, which will set the stage for earnings announcements from Apple, Amazon, and Meta in the coming days. Wall Street is particularly interested in seeing if the significant investments made in AI technologies by these companies are starting to yield positive results.

Another important development came from Meta, the parent company of Facebook and Instagram, as it prepared to report its second-quarter earnings. Wall Street is closely watching Meta's AI spending and advertising business performance. The company's previous quarter saw increased expense estimates, reflecting the growing investment in AI. Investors are eager to see how long these tech companies will need to continue pouring money into AI before they see substantial returns.

In the midst of these market fluctuations, the Federal Reserve began its July policy meeting on Tuesday. While no changes in borrowing costs are expected, analysts anticipate that this meeting will set the groundwork for a rate cut in September. With encouraging June inflation data in the backdrop, the focus now rests on the timing and number of cuts that may occur this year.

Additionally, Meta has agreed to pay a substantial $1.4 billion settlement to Texas in a facial recognition lawsuit. This settlement follows a previous agreement in 2021, when the company paid $650 million to settle similar allegations in Illinois. Meta stated that it is pleased to resolve the matter and looks forward to exploring further business investments in Texas.

As the market continues to react to these developments, several stocks gained traction during afternoon trading on Tuesday. Notably, Nvidia's decline dragged down semiconductor stocks, CrowdStrike faced a fallout from a recent cybersecurity outage, PayPal's second-quarter earnings exceeded expectations, and JetBlue reported a $25 million profit for the second quarter.

With the pivotal Fed policy meeting and key tech earnings on the horizon, the overall market sentiment remains cautious. Investors eagerly await insights from the Fed meeting and the upcoming earnings releases, hoping for clarity on the current state of the economy and the future direction of stock prices.