Stock Market Update

[BRIEFING.COM] The stock market ended the week on a decidedly negative tone after the announcement of elevated tariff rates, weakness in several mega-cap tech stocks following earnings, and soft economic data combined to prompt concerns about economic and earnings growth potential.

Global markets and equity futures were lower this morning after President Trump signed an executive order that increased tariff rates for several key partners, including increases to 50% for Brazil, 35% for Canada (up from 25%), 25% for India, 20% for Taiwan, and a 40% tariff on all transshipped goods, regardless of origin.

The pre-open negativity was compounded by a soft payrolls report for July that saw nonfarm payrolls rise by just 73,000. The major revisions to May and June figures were equally concerning, which showed the combined increase over the two previous months was 285,000 lower than previously reported, bringing the three-month average for nonfarm payroll increases to a scant 35,000.

This afternoon, President Trump fired the Commissioner of Labor Statistics, Dr. Erika McEntarfer, citing the revisions and alleged data manipulation in a post on Truth Social.

The market's economic outlook was not helped by a weaker-than-expected July ISM Manufacturing Index, which suggested that the manufacturing sector has not yet seen the benefits of onshoring in response to the tariff actions, which themselves have stoked a good bit of planning uncertainty.

A large batch of earnings reports between yesterday’s close and today’s open didn’t provide any reprieve either.

Amazon (AMZN 214.75, -19.36, -8.27%) and Apple (AAPL 202.38, -5.19, -2.50%) both beat EPS and revenue expectations, yet both traded lower. Amazon, in particular, got hit hard after its AWS growth and operating income guidance disappointed.

As a result, the consumer discretionary sector (-3.6%) finished as the worst-performing S&P 500 sector among the eight sectors that finished in negative territory.

Today's broad-based losses disproportionately impacted sectors with high growth potential and cyclical stocks. The information technology (-2.1%), financials (-1.8%), energy (-1.8%), and communication services (-1.7%) sectors all closed with sizable losses.

Stocks of all sizes were affected. The Vanguard Mega Cap Growth ETF (-2.3%) felt the pressure from Amazon's underperformance, while the Russell 2000 (-2.0%) and S&P Mid Cap 400 (-1.5%) were rolled back on the growth concerns.

There was a cohort of defensive stocks that benefitted from today's risk-off mindset that saw a pickup in hedging activity. The CBOE Volatility Index was up to 20.57 (+23.0%). The health care (+0.6%), consumer staples (+0.5%), and utilities (+0.1%) sectors all posted gains, reflecting a modest rotation into more defensive-oriented equities.

Ultimately it did little to alter the standings of the major averages, as the S&P 500 (-1.6%), Nasdaq Composite (-2.2%), and DJIA (-1.2%) all incurred losses that saw them finish the week in negative territory.

On the contrary, U.S. Treasuries began August on a firmly higher note, sending yields toward their lows from the start of July.

Today's disappointing economic data led to renewed expectations for a rate cut in September, with the Fed funds futures market now seeing an 86% implied likelihood of a September cut, up from yesterday's 37.7%.

The 2-yr note yield settled 25 basis points lower at 3.70%, while the 10-yr note yield settled 14 basis points lower at 4.22%.

Separately, Fed Governor Adriana Kugler submitted a letter of resignation as a member of the Federal Reserve Board, effective August 8, 2025. President Trump will nominate her successor.

• Nasdaq Composite: +6.9% YTD
• S&P 500: +6.0% YTD
• DJIA: +2.5% YTD
• S&P 400: -0.5% YTD
• Russell 2000: -2.8% YTD

Reviewing today's data:

• July Nonfarm Payrolls 73K (Briefing.com consensus 102K); Prior was revised to 14K from 147K, July Nonfarm Private Payrolls 83K (Briefing.com consensus 110K); Prior was revised to 3K from 74K, July Unemployment Rate 4.2% (Briefing.com consensus 4.2%); Prior 4.1%, July Avg. Hourly Earnings 0.3% (Briefing.com consensus 0.3%); Prior 0.2%, July Average Workweek 34.3 (Briefing.com consensus 34.2); Prior 34.2
  • The key takeaway from the report is the soft nonfarm payrolls situation, as that will stoke concerns that the Fed is behind the curve, which in turn could stoke concerns that economic and earnings growth prospects are not as bright as currently envisaged. That could pose problems for a richly valued stock market, unless it trades through that noise and focuses on the notion that rate cuts are sure to follow.
• June Construction Spending -0.4% (Briefing.com consensus 0.1%); Prior was revised to -0.4% from -0.3%
  • The key takeaway from the report is the same as the prior month: a downturn in new single-family construction, which is being pressured by higher costs, was the driver behind the weakness in residential spending.
• July S&P Global U.S. Manufacturing PMI - Final 49.8; Prior 52.9
• July ISM Manufacturing Index 48.0% (Briefing.com consensus 49.5%); Prior 49.0%
  • The key takeaway from the report is that 79% of the sector's GDP contracted in July. That is up from 46% in June and suggests the manufacturing sector has not yet seen the benefits of onshoring in response to the tariff actions, which themselves have stoked a good bit of planning uncertainty per the observations of survey respondents.
• July Univ. of Michigan Consumer Sentiment - Final 61.7 (Briefing.com consensus 61.8); Prior 61.8
  • The key takeaway from the report is that consumer sentiment, while not strong, has improved in recent months along with inflation expectations.