S&P 500 Dips 0.4% as US Services PMI Slips to 50.1, Fueling Fed Rate Cut Speculation

The S&P 500 stumbled on Tuesday amid fresh jitters sparked by weaker-than-expected data from the US services sector, a major component of the economy. The Institute for Supply Management's purchasing managers' index for non-manufacturing activity dipped to 50.1 in July, down from 50.8 in June, falling short of forecasts that had it climbing to 51.5. While a reading above 50 technically signals expansion, the figure barely clears that threshold, raising eyebrows about the pace of growth.

This drop is notable because services make up roughly 80% of US GDP, so any faltering in this segment tends to send ripples across the market. Jefferies highlighted that tariffs are still holding back orders and investment, weighing on activity. The data lands just as the earnings season rolls on, adding another layer of uncertainty.

At 3:03 p.m. ET, the Dow Jones Industrial Average had slid 0.1%, the S&P 500 lost 0.4%, and the Nasdaq dropped 0.6%. The slowdown reignited chatter that the Federal Reserve might pivot toward rate cuts as soon as September, especially following last week's soft jobs report and comments from Federal Reserve Bank of San Francisco President Mary Daly indicating a possible willingness to ease monetary policy.

On the trade front, June brought some relief as the US trade deficit narrowed to $60.2 billion from a revised $71.7 billion in May, better than expectations. The dip stems from a slowdown in imports, particularly after a surge earlier in the year fueled by tariffs.

Meanwhile, the earnings parade featured some standouts. Palantir Technologies (NASDAQ: PLTR) rallied hard after hitting record quarterly revenue, driven by growing AI-powered services and increased demand from government and corporate clients. The Pentagon's push to buy defense software outside traditional channels seems to be paying off for Palantir.

Pfizer (NYSE: PFE) also caught attention with earnings that blasted analysts' expectations and a raised full-year profit outlook. In contrast, Marriott International (NASDAQ: MAR) saw shares flatline despite beating Q2 earnings targets, as the company tightened its full-year outlook amid lingering pain from government budget cuts and sluggish business travel.

Caterpillar (NYSE: CAT) was a slight bright spot with shares edging higher. The heavy equipment giant missed on adjusted earnings but managed to beat on revenue, highlighting a mixed bag as it contends with global economic headwinds.

With valuations stretched in 2024 and an increasingly cautious market mood, investors are feeling the squeeze when it comes to finding clear winners. Whether this services sector slip marks a hiccup or something deeper remains to be seen, but it's safe to say the usual summer lull in volumes isn't helping smooth out the picture.