ISM Reports Peak in Service-Sector Prices, Market Responds

American equities ended the trading day on a down note following a surge in service-sector prices and a hint of dwindling employment, according to the Institute for Supply Management. The June pricing index reached its peak, unseen since October 2022, while the workforce index saw a diminishing trend. This marked the fourth displacement of this metric in a span of five months. These figures augment the conversation around a prospective reduction in the Federal Reserve’s rates.

The FedWatch utility of CME, which predicts market anticipations for alterations in rates with each Federal Reserve gathering, now shows more than a 91% probability of a cut during the meeting scheduled on September 16 and 17. This is a notable rise from the previous week where the odds hovered roughly around 60%. The financial gravity of the moment was also reflected in the formidable Dow and S&P 500, which slid 0.14% (or 61.90 points) and 0.49% (or 30.74 points) respectively; the Nasdaq, with its tech-centric weightage, dropped by 0.65% (or 137.03 points).

These market shifts have occurred despite the week’s positive start which featured the largest daily percentage uptick since May 27, attributed to the growing optimism for an impending Federal Reserve rate reduction and bettering relationships on the trade front. However, the tempest of tariff threats from President Trump aimed at sectors like pharmaceuticals, semiconductors, and even geographical zones like India, mingled with several important earnings reports to create a mixed impression among investors.

The earnings disclosures brought a mixed bag of results from different companies. Software analytics enterprise Palantir enjoyed a remarkable quarter, surpassing market expectations, whereas the restaurant chain Denny’s and wellness outfit Hims & Hers Health failed to live up to market projections. Equally notable were the announcements from Pfizer and DuPont which reported solid results before the market opened, and Caterpillar confirmed a mixed quarter; the second quarter for Yum Brands proved disappointing.

Approaching the larger geopolitical sphere, President Trump, in a discussion with CNBC, indicated the prospect of imposing tariffs on pharmaceuticals and semiconductors in the coming week. Further, Trump plans to increase the existing 25% tariff on India, on account of the nation continuing its oil procurement from Russia. This plan, once operationalized, would significantly impact the trade relations between the U.S. and India.

Meanwhile, in Europe, President Karin Keller-Sutter and Economy Minister Guy Parmelin of Switzerland might soon be visiting the United States to engage in trade dialogues. They aim to mitigate the burdensome 39% tariff that President Trump has imposed. These actions reveal an international response to the ongoing tariff threats, and underscore the global ramifications of U.S. economic policy.

In parallel to the wider trade conversations, within the internal government apparatus, Trump has narrowed down the candidates to four individuals for the upcoming Federal Reserve chair position. A noticeable exclusion from this elite group is Treasury Secretary Scott Bessent. Among the remaining hopefuls are former Governor Kevin Warsh and Kevin Hassett, the National Economic Council director, both with publicly stated pro-rate-cut views.

These developments coincide with the sudden resignation of Fed Governor Adriana Kugler announced last week, sparking the need for the appointment of her successor. In this confluence of events, the decisions on rate cut and staffing the Fed are of vital importance and their impacts would be reverberated across the financial world.

Back in the corporate world, Palantir, a key player in software analytics, shared encouraging news on surpassing the revenue mark of $1 billion for the first time in its third fiscal quarter. Their optimistic forecast promises significant full-year sales. Additionally, Axon, the enterprise behind TASER, outperformed second-quarter estimates, subsequently upgrading its annual sales forecast based on increasing security demands.

However, not all companies reported positive outcomes. For instance, Marriott International, one of the largest hotel chains, reduced its yearly projections due to subdued demand in travel. Meanwhile, Staar Surgical decided to sell itself for $28 per share in cash to Alcon, in hope of fostering better financial outcomes.

Pfizer, a renowned pharmaceutical company, exceeded the forecasts for the second quarter and revised its full-year adjusted earnings per share outlook upwards. However, some corporations failed to meet their revenue estimates. For instance, Caterpillar, confronted with tariffs, failed to hit profit expectations for the second quarter. Similarly, Hims & Hers Health could not meet the second-quarter estimates.

Yet, it wasn’t just a tale of misses. Dupont’s revenues for the second quarter rallied past the estimates, prompting the chemical giant to raise its full-year forecast. Similarly, Eaton exceeded second-quarter predictions but cautiously reduced guidance for the current quarter below market expectations. Sadly, Yum Brands could not follow the trend, underdelivering in its second-quarter projections.

Finally, there were outliers such as Denny’s, whose quarterly earnings disappointed and Vertex Pharmaceuticals, which despite exceeding second-quarter estimates, warned of halting progress on its next-generation painkiller, VX-993, after the drug failed to meet its expected endpoint in Phase 2. Bitcoin adviser David Bailey also announced plans to garner $200 million for a political action committee to champion Bitcoin interests in the U.S., highlighting another dimension of the rapidly evolving financial landscape.