Stocks Fall as US Services Flash Warning Signals: Markets Wrap

(Bloomberg) — Stocks wiped out gains after data showed weakening US services amid sticky price pressures, raising concern about the Federal Reserve’s policy challenges. Short-dated Treasuries underperformed. Oil sank as Russia was said to mull an air-truce with Ukraine.

Following a rally that put the S&P 500 on the brink of all-time highs, the benchmark lost steam. A gauge of chipmakers slid more than 1%. In late hours, Advanced Micro Devices Inc. gave a stronger-than-expected sales forecast, but warned that its access to the crucial China market remains uncertain. Super Micro Computer Inc. tumbled after its results missed expectations.

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A soft $58 billion sale of three-year notes kicked off a trio of US auctions this week. The yield on 10-year Treasuries was little changed at 4.20%, while those on two-year notes rose four basis points to 3.72%.

“We expect further choppy trading to persist in the later stages of summer, especially as the path of interest-rate policy remains unknown and highly sensitive to incoming economic data,” said Chris Senyek at Wolfe Research.

The US services sector stagnated as firms — faced with tepid demand and rising costs — reduced headcount. Data out last week showed weaker-than-expected jobs data while inflation-adjusted consumer spending barely rose.

“It is difficult to see how price pressures will stick if employment is cooling,” said Neil Dutta at Renaissance Macro Research. “Demand is not going to be strong enough for households to absorb the price increase. This is why an insurance cut makes sense.”

President Donald Trump told CNBC that Treasury Secretary Scott Bessent said he did not want to be nominated to replace Jerome Powell as the next Fed chair. Trump also said that US tariffs on semiconductor and pharmaceutical imports would be announced “within the next week or so.”

The Institute for Supply Management’s index of services declined last month to 50.1, below all estimates in a Bloomberg survey of economists. The employment index contracted. The group’s measure of prices paid for materials and services climbed to the highest since October 2022.

To Ian Lyngen at BMO Capital Markets, the inflation component was more troubling. Nonetheless, the payrolls report has still paved the way for a September rate cut, he noted.

“The ISM services survey highlights the challenges for the Fed in the coming months, with the activity and employment indicators weakening even as the prices paid index rose to a new cyclical high,” said Alexandra Brown at Capital Economics.

The latest labor data is weak enough for the Fed to justify cutting interest rates, said Ulrike Hoffmann-Burchardi at UBS Global Wealth Management. Her firm’s base case remains that the US central bank will resume rate cuts at the September meeting, with a total of 100 basis points of easing by early 2026.

‘Sticky Inflation Signs’

“Traders are continuing to speculate on the time of the Fed’s next rate cuts with sticky inflation signs weighed against weakening economic indicators,” said Fawad Razaqzada at City Index and Forex.com.

He also noted the S&P 500 outlook could start to deteriorate in the near-term amid warnings over sky-high valuations against a backdrop of weakening economy.

“Should worries about overstretched valuations start to weigh on a few high-flying tech names, most of which have been supported by their latest earnings results, then the major indices could start to show bearish signs,” he said.

Fast-money investors will likely reach full exposure to US equities by September, which could prompt them to sell stocks as they become vulnerable to downside market shocks, according to Scott Rubner of Citadel Securities.

At Jefferies, Andrew Greenebaum says the Fed could be poised to trigger a stock-market regime change that sees smaller companies perform better than megacap tech. Data going back to 1990 show that the S&P 500 Equal Weighted Index outperformed the traditional market-cap weighted version of the benchmark when the Fed is reducing rates

Meantime, HSBC strategists boosted their year-end target for the S&P 500 to 6,400 points from 5,600, citing robust corporate earnings and easing policy uncertainty.

“The AI trade is powering the tech/AI cohort higher, while reduced policy uncertainty (namely tariffs) is fueling the ‘rest’ of the market,” the team led by Nicole Inui wrote. “We have more confidence in the sustainability of the AI trade than further easing on policy uncertainty.”

Corporate Highlights:

Two Chinese nationals were arrested this week on charges they sent tens of millions of dollars worth of advanced AI chips made by Nvidia Corp. to China in violation of US export restrictions, according to authorities. Tesla Inc. continues to post steep sales declines in Europe, where the Elon Musk-led automaker is ceding significant share to China’s BYD Co. Amazon.com Inc. plans to make OpenAI’s new open artificial intelligence models available to customers, the first time the cloud computing giant has offered products from the leading AI startup. President Donald Trump accused two of the nation’s largest banks of rejecting his business, as his administration was preparing an executive order threatening financial institutions who refused to work with certain customers on ideological grounds. Trump told CNBC he had been “informed by my people” that JPMorgan Chase & Co. had asked him to close accounts he held for decades within 20 days, and that Bank of America Corp. declined his attempt to deposit more than $1 billion with their company. Rivian Automotive Inc. forecast a larger adjusted loss this year than the electric vehicle maker expected previously, citing recent changes to stringent fuel economy rules in the US that threaten a key source of revenue. Amgen Inc. boosted its 2025 guidance after quarterly results beat Wall Street’s estimates on the back of strong sales from older medicines such as the cholesterol-lowering drug Repatha. Snap Inc. reported second-quarter sales that were shy of Wall Street’s average estimates as the company, owner of the Snapchat photo-sharing app, dealt with a technical issue with its advertising auction that slowed revenue growth Caterpillar Inc. has given investors annual guidance for the first time on how much tariffs will impact the maker of iconic yellow diggers and bulldozers this year, as the Trump administration’s trade war deepens. Pfizer Inc. raised its profit forecast for the year, with the drugmaker’s ongoing cost cuts helping to make up for a lack of expected sales growth. Vertex Pharmaceuticals Inc.’s experimental pain drug failed to provide post-surgery benefits and US regulators said they didn’t see a path forward for broad use of its pill in treating a chronic pain condition. Taiwan prosecutors arrested six people suspected of stealing trade secrets from Taiwan Semiconductor Manufacturing Co., opening an investigation into a potential breach of national security involving a global tech industry linchpin. Some of the main moves in markets:

Stocks

The S&P 500 fell 0.5% as of 4 p.m. New York time The Nasdaq 100 fell 0.7% The Dow Jones Industrial Average fell 0.1% The MSCI World Index fell 0.2% Bloomberg Magnificent 7 Total Return Index fell 0.6% Philadelphia Stock Exchange Semiconductor Index fell 1.1% The Russell 2000 Index rose 0.6% Currencies

The Bloomberg Dollar Spot Index was little changed The euro was little changed at $1.1573 The British pound was little changed at $1.3296 The Japanese yen fell 0.4% to 147.61 per dollar Cryptocurrencies

Bitcoin fell 1% to $113,642.14 Ether fell 3.5% to $3,571.97 Bonds

The yield on 10-year Treasuries was little changed at 4.20% Germany’s 10-year yield was little changed at 2.62% Britain’s 10-year yield was little changed at 4.52% The yield on 2-year Treasuries advanced four basis points to 3.72% The yield on 30-year Treasuries declined two basis points to 4.77% Commodities

West Texas Intermediate crude fell 1.7% to $65.14 a barrel Spot gold rose 0.2% to $3,379.14 an ounce ©2025 Bloomberg L.P.