• The S&P 500 and Nasdaq Composite closed lower on Tuesday.
• Microsoft reported disappointing cloud results.
• The Fed is expected to hold rates steady at Wednesday's meeting.

Here are five key things investors need to know to start the trading day:

1. Dragged down

The S&P 500 and Nasdaq Composite moved lower on Tuesday as the rotation out of megacap technology stocks continues. The broad market index fell around 0.6%, and the Nasdaq declined even more at 1.2%. On the other hand, the Dow Jones Industrial Average saw gains, closing the session out 0.3% higher. This comes amid a strong earnings season so far, with around 80% of the 230 S&P 500 companies that have already posted results beating expectations, per FactSet data. According to Mona Mahajan, Edward Jones principal and senior investment strategist, earnings growth is "broadening." "We do think that with tech earnings, the bar is high," she said. "If we get any whiffs of a cooling in AI spending, we could see the stocks pull back a bit. But we've already gone through a decent correction."

2. Cloudy

Microsoft's disappointing cloud results may be raining on its earnings parade. The company's Intelligent Cloud segment – which includes the Azure public cloud, Windows Server, Nuance and GitHub – brought in $28.52 billion in revenue for the fiscal fourth quarter. This was below the $28.68 billion consensus estimate, according to analysts polled by StreetAccount. Revenue from Azure and other cloud services increased by 29% in the period, falling short of the 31% growth expected by analysts polled by CNBC and StreetAccount. Shares of Microsoft tanked in extended trading Tuesday following the news despite the company also beating Wall Street's earnings and revenue expectations in its quarterly results.

3. Fed ahead

The stage is set for the Federal Reserve's meeting on Wednesday, which could provide clues about the trajectory of possible interest rate cuts in the coming months. For the past year, the Fed has kept its benchmark funds rate unchanged, holding steady between 5.25% and 5.5%. Policymakers are expected to once again hold short-term interest rates steady at this meeting — and to tee up cuts for September. "Opening the door for that rate cut is probably the most appropriate thing for them at this point," said Glenmede's Michael Reynolds. "But the markets are already pretty excited about that, pricing it in with nearly 100% probability. So the Fed doesn't have to do too much to change the narrative on that at all. I think if they just directionally tailor the statement, it'll get the job done," the firm's vice president of investment strategy continued.

4. Settled

Meta on Tuesday agreed to settle a lawsuit, paying out a record $1.4 billion to the state of Texas over five years. The suit, filed by Texas Attorney General Ken Paxton in February 2022, accused the company of capturing and using the biometric data of millions of Texas residents without their consent. According to Paxton's office, Facebook stored billions of biometric identifiers – with the data being contained in uploaded photos and videos on the site – following the introduction of its new feature called "Tag Suggestions" in 2011. "Unbeknownst to most Texans, for more than a decade Meta ran facial recognition software on virtually every face contained in the photographs uploaded to Facebook, capturing records of the facial geometry of the people depicted," the attorney general's office said.

5. Layoffs in the cards?

Stellantis is yet again reducing its U.S. workforce. In an email to its employees on Tuesday, the automaker said it's going to offer a broad voluntary buyout to non-union employees at the vice president level "and below in certain functions." The company also said that involuntary terminations could occur if there aren't enough employees participating in the buyout program. According to the email, eligible employees will be notified in mid-August via email on how to access their offers. From December 2019 until the end of 2023, Stellantis has cut around 47,500 employees, or 15.5% of its workforce, per public filings.

— CNBC's Pia Singh, Yun Li, Jordan Novet, Jeff Cox, Dan Mangan and Michael Wayland contributed to this report.

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