The S&P 500 ended lower on Tuesday as unexpected weakness in U.S. services sector data raised fresh concerns about the strength of the economy, just as the corporate earnings season continues.
At the closing bell (4:00 p.m. ET), the Dow Jones Industrial Average slipped by about 62 points, or 0.1%. The S&P 500 dropped 0.4%, while the NASDAQ Composite fell 0.7%.
Services Activity Shows Surprise Contraction
Economic jitters were sparked by data from the Institute for Supply Management (ISM), which revealed that its non-manufacturing Purchasing Managers’ Index (PMI) fell to 50.1 in July, down from 50.8 in June and well below expectations of 51.5. Although a reading above 50 still signals expansion, the downturn raised alarms about slowing momentum in the services sector, which represents over two-thirds of the U.S. economy.
Jefferies noted in a report that “anecdotal comments suggest tariffs remain a major headwind to orders, investment, and overall activity.”
The soft reading comes at a time when many investors anticipate the Federal Reserve could begin cutting interest rates as early as September. Expectations for a rate cut have grown following a weaker-than-expected jobs report last week and dovish comments from San Francisco Fed President Mary Daly, who suggested she may support a cut at the next policy meeting.
Trade Deficit Narrows Sharply
In other economic news, the U.S. trade deficit contracted more than expected in June, narrowing 16% to $60.2 billion from $71.7 billion in May. The decrease was driven by a drop in imports, following a surge earlier in the year that was partly attributed to tariff-related stockpiling. Economists had forecast a smaller reduction to $62.6 billion.
Corporate Earnings Update: Palantir Shines
Earnings season provided a partial counterweight to the economic concerns, with several companies posting better-than-expected results.
Palantir Technologies (NASDAQ: PLTR) saw its shares surge after reporting its highest-ever quarterly revenue since going public five years ago. The company credited strong demand from both government and corporate clients for its AI-powered analytics and defense software. Momentum has also been supported by the White House’s push for broader AI adoption and the Pentagon’s interest in sourcing software from non-traditional suppliers.
Pfizer (NYSE: PFE) advanced after the pharmaceutical giant reported second-quarter earnings and revenue that beat analyst forecasts. The company also raised its full-year profit outlook.
Marriott International (NASDAQ: MAR) was little changed, despite beating second-quarter earnings estimates. The hotel group narrowed its full-year guidance, citing pressure from reduced government spending and softer demand for business travel.
Caterpillar (NYSE: CAT) posted better-than-expected revenue for the quarter, though adjusted earnings came in below analyst estimates. The stock was modestly higher following the results.
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