Decline Amid Concerns of a Tariff-Induced Service Sector Slump… Palantir Surges 8% [New York Stock Market Briefing]

The three major U.S. stock indexes all declined. This was interpreted as a result of weakened investor sentiment following news that the service sector, which accounts for about 70% of the U.S. economy, has deteriorated due to the impact of tariffs.

On the 5th (local time) at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average (DJIA) closed at 44,111.74, down 61.90 points (0.14%) from the previous session. The S&P 500 Index decreased by 30.75 points (0.49%) to 6,299.19, and the technology-focused NASDAQ Composite closed at 20,916.55, down 137.03 points (0.65%).

The U.S. service sector showed signs of weakness. The Institute for Supply Management (ISM) announced that the Services Purchasing Managers Index (PMI) for July recorded 50.1. This marks a decrease of 0.7 points from 50.8 the previous month and fell short of the market expectation of 51.5.

Notably, among PMI sub-indices, the price index rose by 2.4 points to 69.9 compared to the previous month. This is the highest level since 70.7 in October 2022. It indicates strong price pressure across raw materials and service input costs.

So far, the New York Stock Market had remained strong thanks to solid service sector figures despite contracting manufacturing PMI. However, with the service sector now also weakening, analysts suggest that one of the main drivers of the market has been lost.

Scott Anderson, Chief U.S. Economist at BMO Capital Markets, said, “The July ISM services report was disappointing and dreadful,” adding, “The impact of stagflation (recession accompanied by rising prices) seems to be shaking the services sector on a larger scale than previously anticipated.”

Profit-taking following the sharp rebound the previous day also appears to have emerged. In the market, it was considered that the rapid rebound the previous day seemed hasty, given the shock of the July U.S. non-farm payrolls report.

Terry Sandven, Chief Equity Strategist at U.S. Bank Asset Management, said, “A correction phase is expected in the near term, and it seems necessary to secure some support and selling volume,” adding, “Valuations (price relative to earnings) are high and the market is not cheap.”

President Donald Trump announced that he would unveil tariffs on semiconductors and pharmaceuticals next week, which spurred risk aversion sentiment. Trump said, “Initially, there will be slight tariffs on pharmaceuticals, but in a year or at most a year and a half, it will be raised to 150%, and later to 250%.”

Among major tech giants with a market capitalization over $1 trillion, all except Amazon declined. Conversely, U.S. AI defense company Palantir soared more than 7% on strong second-quarter results exceeding market expectations.

U.S. chipmaker AMD announced after the market close that Q2 net income fell short of expectations, resulting in a drop of more than 4% in after-hours trading.

AMD announced Q2 revenue of $7.69 billion and earnings per share (EPS) of $0.48. Market expectations compiled by LSEG were $7.42 billion in revenue and EPS of $0.49.

Snap Inc., which operates the social media platform Snapchat, plunged more than 15% after reporting a Q2 EPS loss of $0.16. Revenue also fell short of market expectations at $1.34 billion versus the expected $1.35 billion.

Caterpillar Inc., a heavy equipment manufacturer that serves as a barometer for the U.S. industrial economy, exceeded market expectations in Q2 revenue but fell short on EPS. Analysts attribute this to the impact of tariffs.

Expectations for interest rate cuts have diminished somewhat. According to the CME FedWatch Tool, the probability of the Fed cutting the policy rate by 0.75 percentage points by December is reflected at 45.8%.

The Chicago Board Options Exchange (CBOE) Volatility Index (VIX) rose by 0.33 points (1.88%) to 17.85.

Go Jung-sam, Hankyung.com Reporter jsk@hankyung.com