U.S. Markets Fall: Weak Services Data, Trump Tariffs, and Earnings Swings

Wall Street started Tuesday on a hopeful note but ended the day in the red. The S&P 500 slipped 0.49%, the Dow Jones lost 0.14%, and the Nasdaq 100 fell 0.73%, with tech stocks taking the biggest hit. September E-mini S&P futures dropped 0.46%, while Nasdaq futures fell 0.71%, reflecting a cautious market mood heading into midweek trading.

The sell-off was triggered by unexpected weakness in U.S. service sector data. July’s ISM Services Index fell to 50.1, missing forecasts of 51.5. Meanwhile, the prices sub-index jumped to 69.9—its highest level in nearly three years. Translation: business activity is slowing, but price pressures aren’t going away just yet.

This combo rattled investors who had been betting on swift Federal Reserve rate cuts. After last Friday’s weak labor and manufacturing reports, markets had priced in a 94% probability of a September rate cut—but Tuesday’s data took some wind out of those sails.

Trade tensions also reentered the spotlight. On Monday, President Trump vowed to “substantially increase” tariffs on Indian imports over the country’s purchases of Russian oil. Canadian exporters are already feeling the heat from a 35% tariff, and Bloomberg estimates that if all announced tariffs take effect, the average U.S. tariff rate would jump to 15.2%—up from just 2.3% a year ago. Investors know that higher tariffs mean potential supply chain disruptions and margin pressure for U.S. companies.

Treasuries mirrored the day’s volatility. September 10-year note futures slipped, with yields rising to 4.202% from 4.183%. A soft $58 billion auction for 3-year notes highlighted lukewarm demand, as traders eyed upcoming quarterly refinancing worth $125 billion.

Still, dovish commentary from San Francisco Fed President Mary Daly helped put a floor under bonds. Daly said the time to cut rates is “approaching,” citing a cooling labor market and no signs of sustained tariff-driven inflation.

Earnings season brought both heartbreak and celebration:

Health insurers also rallied: UnitedHealth (UNH) gained over 4%, CVS Health (CVS) rose more than 3%, and Humana (HUM) advanced 2% after reports suggested lower thresholds for Medicare Advantage bonuses could arrive next year.

Overseas markets were calmer: the Euro Stoxx 50 added 0.14%, Japan’s Nikkei gained 0.64%, and the Shanghai Composite climbed nearly 1%.

All eyes now turn to Thursday’s initial jobless claims, labor productivity data, and continued Q2 earnings reports. So far, 83% of S&P 500 companies have beaten expectations, and profits are on track to grow 9.1% year-over-year—the strongest pace in four years.

Markets remain laser-focused on the September Fed meeting. A 25 bps cut is priced in at 94%, but any renewed price pressures or surprise tariff moves could flip the script quickly.