Equities fall amid slowdown in US services sector

General market commentary

US equities finished broadly lower on Tuesday, as a weaker-than-expected report from the Institute for Supply Management (ISM) on services activity reinforced concerns about a slowing economy and persistent inflationary pressures. The S&P 500 fell by 0.5%, the Nasdaq Composite lost 0.7% to close at 20,916.6, and the Dow Jones Industrial Average slipped 0.1% to 44,111.7. The ISM services index edged down to 50.1 in July from 50.8 in June, just above the threshold that separates expansion from contraction, and was marked by weakening new orders and business activity. The data added to growing fears of stagflation, particularly following a similarly downbeat ISM manufacturing report last week. Sectors such as utilities, technology, and communication services led the declines, while materials outperformed. Despite the broader weakness, the small-cap Russell 2000 index posted a 0.6% gain, suggesting some resilience in more domestically focused shares.

In company news, several high-profile names moved sharply on earnings and guidance. Palantir Technologies surged 7.9%, one of the best performers in the S&P 500, after posting stronger-than-expected second-quarter results and raising its full-year outlook, with a notable surge in US government and commercial sales. In contrast, Novo Nordisk, the Danish pharmaceutical giant known for its obesity and diabetes treatments, saw its US-listed shares fall 3.3% following a downgrade by UBS, which cited headwinds from the continued compounding of its blockbuster weight-loss drugs in the US market. Broader sentiment around technology remained fragile, with large-cap names such as Apple, Microsoft, and Alphabet under pressure amid concerns that tighter corporate budgets and slowing economic momentum could weigh on revenue growth in the second half of the year. US Treasury yields ticked higher, with the two-year rising to 3.73% and the ten-year yield nudging up to 4.21%, reflecting cautious sentiment ahead of further data releases that may shape the Federal Reserve’s next policy move.

Latest market and economic update

Asian equities were mixed on Wednesday, with most indices seeing modest moves. Australia’s ASX 200 hit a record high amid growing expectations of rate cuts from the RBA. Japan’s Nikkei and TOPIX posted gains, while South Korea and Singapore slipped slightly. India’s market was steady ahead of the RBI decision. China and Hong Kong shares remained subdued.

US equity futures dipped overnight, with Nasdaq futures down 0.3% and S&P 500 futures falling 0.1%, while Dow futures remained flat. In after-hours trading, AMD fell over 6% after missing estimates due to export restrictions, while Snap dropped nearly 15% on weak revenue. Arista Networks jumped 13% following strong results.

European equities closed slightly higher on Tuesday, with the STOXX 50 up 0.2% and the STOXX 600 rising 0.1%. AB InBev and Diageo gained over 2% on strong earnings, while Ferrari added 2.5%. Siemens, Airbus, and BASF also rose over 1%. Infineon surged nearly 5% following robust quarterly results, outperforming amid semiconductor tariff concerns.

The US dollar traded broadly flat this week, with the dollar index steady around 98.8 as investors weighed mixed economic data and Fed rate cut expectations. Against the euro, the dollar held firm, with EUR/USD hovering near 1.1573. Softer US services data and renewed trade tensions have fuelled market bets on a September Fed rate cut.

Oil prices edged up in Asian trade, recovering from a five-week low amid potential tighter US sanctions on Russian oil buyers. Brent rose to $68 and WTI to $64.53 a barrel. Gains were limited by concerns over increased OPEC+ production and weak global demand, while US inventory draws provided some support.

Equities on the move

The following companies experienced moves in their share price driven by analyst ratings, quarterly earnings, or other news:

AMD’s data centre revenue grew 14% to $3.2 billion in Q2 but lagged behind rival Nvidia’s 73% surge. AI chip sales declined due to US export restrictions to China. CEO Lisa Su expects a production ramp-up for new MI350 chips. AMD forecasts Q3 revenue around $8.7 billion, missing some AI chip shipments to China amid licence reviews.

Super Micro missed Q4 revenue and profit estimates, with $5.76 billion revenue and 41 cents EPS, falling short due to tariffs and Nvidia chip delays. Its full-year guidance was cut to $33 billion from $40 billion. Despite strong AI demand, competition from Dell and HP pressured sales, causing shares to drop nearly 16.3% in extended trading.

Snap reported its slowest quarterly growth in over a year, with revenue rising 8.7% to $1.34 billion, impacted by an ad platform glitch and strong competition from Meta and TikTok. Net losses widened to $263 million. Snapchat+ subscribers grew 42% to nearly 16 million, while daily users rose 9% to 469 million. Third-quarter revenue is forecast between $1.48–$1.51 billion.

Diageo reported a smaller-than-expected annual profit drop and expects a permanent CEO by October, lifting shares nearly 7%. The company plans to mitigate US tariff impacts and boost pricing. Amid industry challenges, Diageo aims to cut costs by $625 million and grow through smaller packs and premixed drinks targeting younger consumers.

BP will review its oil and gas assets and consider further cost cuts to boost shareholder returns, following strong second-quarter profits. The firm plans $20 billion in divestments by 2027 and raised its dividend. BP aims to allocate capital effectively amid new projects and exploration successes, with a focus on reducing debt and costs.

US President Donald Trump threatened tariffs of up to 250% on pharmaceutical imports to encourage domestic production. He indicated tariffs would start small, rise to 150% within 18 months, then reach 250%. Trump previously suggested pharmaceutical tariffs could hit 200%, with sectoral tariffs initially at 25% or higher, increasing significantly over a year.

OpenAI is reportedly in early talks for a secondary share sale valuing the company at $500 billion, up from $300 billion previously. The sale would allow current and former employees to sell shares. OpenAI recently hit 700 million weekly ChatGPT users and secured $8.3 billion in funding, though concerns remain over cash burn and project delays.

Walt Disney’s ESPN has agreed to acquire the NFL Network and other media assets in exchange for the NFL receiving a 10% stake in ESPN, valued at $2–3 billion. The deal, pending regulatory approval, will enhance ESPN’s streaming service, offering expanded NFL content including NFL Fantasy and RedZone distribution rights.

Hims & Hers shares fell further after Novo Nordisk filed 14 new lawsuits against producers and telehealth firms marketing unapproved compounded semaglutide products. Novo Nordisk, protecting its GLP-1 drugs Wegovy and Ozempic, alleges illegal steering of patients and unsafe products, citing FDA warnings and imported ingredients from unregulated Chinese facilities.

Mexico aims to end funding Pemex by 2027, expecting the state energy firm to be financially self-sufficient. Measures include debt reduction, boosting production via 21 mixed contracts, and refining more oil domestically. A $13 billion investment vehicle and recent $12 billion debt offering support these goals, targeting debt cuts and infrastructure development through 2035.

Bank of America raised Oracle’s price target to $295, citing strong AI infrastructure demand and increased capex guidance from Microsoft and Meta. The firm highlighted Oracle’s OCI platform as a key beneficiary in the growing AI market, estimating a $155 billion addressable market, but kept a Neutral rating due to uncertain revenue impact from AI opportunities.

Wedbush raised Palantir’s price target to $200, citing strong AI demand after the company’s first $1 billion quarter. US commercial revenue surged 93%, while government revenue grew 53%. Profitability and free cash flow beat estimates. Palantir expects full-year revenue around $4.15 billion, with US commercial growth forecast above 85%.

UBS downgraded Novo Nordisk to Neutral, cutting its price target to 340 DKK amid growing US competition from compounded versions of its obesity drugs. Sales growth is slowing, with market share lost to Eli Lilly’s Mounjaro. Legal action and potential Medicare reimbursement offer some support, but price-cut demands and market challenges persist.

Jefferies cut Stellantis’ price target to €11, citing slower turnaround progress and lowering 2025 EBIT and EPS forecasts sharply. While maintaining a Buy rating, it flagged delayed free cash flow recovery and limited 2026 shareholder returns. North America is expected to break even in 2025, with Europe and Latin America facing mixed prospects.

UBS upgraded Société Générale to Buy from Neutral after strong Q2 results and improved guidance on costs and capital distribution. The price target rose to €62, with EPS forecasts boosted and a 15% upside expected. The bank aims for better profitability, cost efficiency, and a 14% dividend yield by 2027, supported by French Retail growth.

Upcoming data and events

The main economic releases today come from the Euro Area and include Germany’s factory orders, along with private sector payroll and trade data from France. Major earnings reports feature McDonald’s, Walt Disney, Uber in the US, and Diageo, Glencore, Bayer, Continental in Europe, representing broad sectoral coverage and significant market interest.

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