The S&P 500, a barometer for the top 500 USA stocks, settled up 1.2 percent, at 3,236.
Apple, the other titan that trades off with Microsoft for the title of most valuable US stock, was also down 4.6%. "There was also a significant delta between large cap and small cap and we're seeing that narrow as well".
The U.S. Labor Department is scheduled to release its latest report on weekly jobless claims at 8:30 a.m.
The number excludes recipients of Pandemic Unemployment Assistance, set to expire on July 31.
Because Microsoft is one of the largest USA stocks by market value, its movements have an outsized effect on indexes such as the S&P 500.
The Dow Jones Industrial Average fell 353.51 points, or 1.31 percent, to 26,652.33, the S&P 500 lost 40.36 points, or 1.23 percent, to 3,235.66 and the Nasdaq Composite dropped 244.71 points, or 2.29 percent, to 10,461.42.
The broader market suffered losses as major tech giants' shares dropped, with Microsoft losing 4.4 percent. Refinitiv data shows that 77 percent of those have beaten expectations that were extraordinarily low.
Microsoft Corp dropped 4.3 percent after reporting its cloud computing business Azure reported its first-ever quarterly growth under 50 percent.
Tesla gained 0.7 per cent as it reported a surprise US$104 million second-quarter profit. But the stock slid 5.0 percent as analysts questioned whether the electric automaker's stock price matched its performance.
American Airlines Group Inc jumped 3.7 percent after announcing it would rethink the number of flights to add in August and September.
Shares in China, Hong Kong and Australia bore the brunt of losses.
Airlines, battered by mandated lockdowns, reversed early losses to cross well into the black. The S&P 1500 Airlines index gained 1.3 percent.
Wall Street stocks treaded water early today as Washington policy makers debated terms of additional stimulus spending and unemployment claims rose amid the latest spike in coronavirus cases.
Advancing issues outnumbered decliners for a 1.22-to-1 ratio on the NYSE and a 1.54-to-1 ratio on the Nasdaq.
Futures for the NASDAQ picked up 6.25 points, or 0.6%, to 10,866.75.
Analysts said investors also are wary over the unclear prognosis for further stimulus for the US economy, just as the end of a previous package of extra support for those made jobless by the pandemic looms.
Volume on USA exchanges was 10.77 billion shares, compared with the 11.14 billion average over the last 20 trading days.