Stock Market Update

[BRIEFING.COM] The stock market saw its modest opening gains quickly reversed in the wake of a halting July ISM Services PMI, with the major averages drifting below their opening levels and closing with modest losses.

While yesterday's advance was impressive in its magnitude, there was little in the way of tangible developments to substantiate the gains, a notion that was swiftly reiterated by the market's reaction to today's softer economic data. 

The July Services PMI registered at 50.1%, just barely above the 50.0% benchmark for contraction. A faster rate of contraction in the employment index and a faster increase in the prices index combined to prompt stagflation concerns, which become especially relevant when last week's underwhelming payrolls report is taken into consideration.

As a result, losses were relatively broad-based today, with seven S&P 500 sectors finishing in negative territory. 

The utilities (-1.1%), communication services (-0.9%), and information technology (-0.9%) sectors faced the widest losses among S&P 500 sectors today, though today's retreats were modest in comparison to yesterday's advance. Only the energy sector (+0.2%), which closed higher today, holds a week-to-date loss (-0.3%). 

The materials (+0.8%), consumer discretionary (+0.3%), and real estate (+0.3%) sectors were the other three sectors that closed with a gain. 

Small-cap stocks also furthered their advance today, with the Russell 2000 closing with a gain of 0.6%. The S&P 500 Equal Weighted Index (-0.3%) outperformed the market-weighted S&P 500 (-0.5%), while the Vanguard Megacap Growth ETF finished with a loss of 0.8% after yesterday's 2.0% gain.

Today's economic data notwithstanding, there was a lack of major developments to sway the market from a sideways drift after the early losses. 

Trade headlines were notably slim, though President Trump stated in a CNBC interview before the open that he will soon announce a separate tariff plan for semiconductor and pharmaceutical imports. 

The PHLX Semiconductor Index was down 1.1%, with losses in the broader technology sector masking an impressive earnings report from Palantir Technologies (PLTR 173.27, +12.61, +7.9%).

Tariff concerns were reflected in today's June Trade Balance report, as a notable decrease in imports hints at impeded global trade activity.

In the same CNBC interview, President Trump indicated that he may be announcing a replacement for Fed Governor Kugler soon and that there is a possibility whoever fills her seat could eventually be nominated for Fed Chair. The president also indicated that Treasury Secretary Bessent does not want the Fed Chair job and that he has taken Mr. Bessent's name "off the list," which currently includes four people being considered by the president, including former Fed Governor Warsh and NEC Director Hassett.

U.S. Treasuries had a mixed outing in a curve-flattening trade that was dictated by the underperformance of the front end of the curve versus the back end. Today's trade featured a relatively disappointing 3-year note auction that saw weak interest on the part of indirect bidders.

The 2-year note yield settled up four basis points to 3.72%, and the 10-year note yield finished unchanged at 4.20%.

• Russell 2000: +2.7% WTD
• Nasdaq Composite: +1.3% WTD
• S&P Mid Cap 400: +1.2% WTD
• S&P 500: +1.0% WTD

Reviewing today's data:

• June Trade Balance -$60.2 bln (Briefing.com consensus -$62.0 bln); Prior was revised to -$71.7 bln from -$71.5 bln
  • The key takeaway from the report is that it reflects the fact that tariff actions by the U.S. and the uncertainty related to the tariffs have impeded global trade activity.
• July S&P Global U.S. Service PMI - Final 55.7; Prior 52.9
• July ISM Services 50.1% (Briefing.com consensus 51.5%); Prior 50.8%
  • The key takeaway from the report is that it reflects a slowdown in growth for the country's largest sector, accompanied by a faster contraction in employment and a faster increase in prices. It is a combination that will provoke stagflation chatter.