Market Pulls Back as Services Data Rekindles Stagflation Worries

After a strong rally the day before, the stock market took a step back on Tuesday, as disappointing economic data erased early gains and left major averages with modest losses. The catalyst came in the form of the July ISM Services PMI, which undershot expectations and reintroduced concerns about stagnating growth and persistent inflation.

The Services PMI registered just 50.1%, narrowly above the contraction threshold of 50.0. Notably, the report showed an accelerating decline in service sector employment and a faster rise in prices—fueling fears of stagflation, especially when viewed alongside last week’s weaker-than-expected jobs report.

As a result, selling was fairly broad-based. Seven of the eleven S&P 500 sectors ended the day in the red. Utilities (-1.1%), communication services (-0.9%), and information technology (-0.9%) led the retreat. Still, Tuesday’s declines were moderate relative to Monday’s impressive gains.

Energy (+0.2%) was the only sector to notch a gain today, although it’s still down slightly for the week. Materials (+0.8%), consumer discretionary (+0.3%), and real estate (+0.3%) were the other three sectors that managed to finish in positive territory.

Small-cap stocks outperformed once again, with the Russell 2000 gaining 0.6%. The equal-weighted S&P 500 slipped 0.3%, holding up better than the market-cap-weighted index, which lost 0.5%. The Vanguard Mega Cap Growth ETF lagged, shedding 0.8% after gaining 2.0% yesterday.

Despite the economic headlines, there was a notable absence of market-moving developments elsewhere. Trade news remained light, although President Trump said in a CNBC interview before the bell that a new tariff plan targeting semiconductor and pharmaceutical imports is forthcoming.

Semiconductor stocks struggled on the day, with the PHLX Semiconductor Index falling 1.1%, despite a strong earnings report from Palantir Technologies (PLTR), which jumped nearly 8% on the day.

In the same interview, President Trump said he may soon name a replacement for outgoing Fed Governor Adriana Kugler. He also revealed that Treasury Secretary Bessent has been removed from consideration for Fed Chair, narrowing the list of potential nominees to four—including former Fed Governor Kevin Warsh and current NEC Director Kevin Hassett.

While markets are still digesting Monday’s surge, today’s soft data served as a reminder that economic headwinds remain—and that headlines around trade, tariffs, and the Fed could create further crosscurrents in the days ahead.

While the broader market took a breather, the FTinvest 11 portfolio extended its rally with renewed momentum, accelerating meaningfully compared to the previous session.

At one point during the day, the index was up more than 1%, marking a sharp upward push that defied the cautious tone seen elsewhere in the market. Although some of the early gains were trimmed in the afternoon, FTinvest 11 still closed with an impressive 0.87% gain, comfortably clearing the 810 mark.

The final closing level of 813.63 represents a fresh all-time high for the index, highlighting continued investor confidence in the portfolio’s positioning—even as major benchmarks showed signs of fatigue.