US Markets Slip as ISM Services Weaken

Major US indices, including the S&P 500 (ES), Nasdaq (NQ), and Dow Jones (YM), fell on Tuesday, 5 August, recording 0.5%, 0.7%, and 0.1% drops, respectively. Poor ISM services weighed on market sentiment after downward revisions in last week’s labour market data. 

Following the ISM data, the Fed Watch Tool showed an 88% chance of an interest rate cut at the next FOMC meeting on 17 September. However, this was up to 94% in earlier trading on Wednesday and is likely to be priced in until then.

TL;DR

• US indices fell after weak ISM services data and new tariff threats 

• ISM showed declining activity, new orders, and employment, with prices at a 2-year high 

• Market expectations of a Fed rate cut in September are increasing

• Trump announced tariffs on chips and pharmaceuticals

• Some Tech stocks dropped, except PLTR, which surged after strong earnings 

• JPMorgan and Bank of America shares declined on discrimination probe threats 

• Investors await Fed and BLS leadership updates and further White House announcements 

Services Sector Stumbles as Price Pressures Mount

Business activity, new orders and employment declined in July, while prices paid, an inflationary component, spiked to a 2022 high of 69.9. The employment component slid further into contraction, to 46.4 from 47.2 in June, reinforcing last Friday’s soft NonFarm Payrolls, which are expected to deteriorate further due to DOGE cuts.

Service providers said that tariffs' effects are finally hitting markets, as import taxes are adding costs to a sector accounting for about 70% of US economic activity. Some analysts fear stagnation, where growth remains stagnant and prices are high. 

Recent GDP data showed a reversion of the 0.5% decline recorded in Q1, but the first half saw a mediocre 1.2% increase, with domestic investment tumbling by a substantial 15.6% in Q2. Notably, consumers have continued to spend on artificial intelligence and are expected to do so in the future. But there’s a caveat: the US President announced on Tuesday at CNBC that he will add tariffs on semiconductors and pharmaceuticals. (Source: Barron’s)

Trump Targets Chips and Pharma with New Tariff Threats

During his live interview with CNBC, Trump said he would impose tariffs on chips and pharmaceuticals “within the next week or so.” “We want them made in the United States,” he said about microchips. 

Currently, most chip imports in the US come from Taiwan, which faces an additional 20% tariff effective this week. Taiwan is home to chipmaker TSMC (TSM), which provides chips to Nvidia (NVDA), Apple (AAPL), Qualcomm (QCOM) and AMD (AMD). NDVA stock fell 0.97% following the online interview despite analysts upgrading their price target to $220, and has yet to report its earnings (reports on 27 August). Several major tech stocks like Microsoft (MSFT), Broadcom (AVGO) and Meta (META) were down.

Meanwhile, AMD reported mixed earnings results, which were negatively impacted by Trump’s ban on chips to China. SMCI (SMCI) also declined after missing estimates and expressing concerns about AI cloud competition. Palantir (PLTR), on the other hand, soared around 8% after beating estimates. Q2 revealed alarming signs from Trump’s tariffs. Caterpillar (CAT) said tariffs would cost the company up to $1.5 billion in 2025 alone. 

Besides tariff-related drivers, some of the US’s biggest banks declined on Tuesday. (Source: Reuters)

Major US Banks Under Fire Over Discrimination Claims

JPMorgan (JPM) and Bank of America (BAC) came under pressure after Trump confirmed he would sign an executive order to punish big banks that discriminate against conservatives and crypto companies. JPM was down 0.98% and BAC 0.63% at the close as the President directed regulators to investigate violations of the Equal Credit Opportunity Act.

Trump cited his own “very bad” discriminatory experience with JPM, while the draft order refers to BAC’s discrimination against a Ugandan Christian organisation. However, some other banks may be implicated, as the draft suggested an important role in the US Capitol riots in 2021. 

Markets Brace for Fed, BLS, and Oval Office Updates

Meanwhile, investors are waiting for Trump to find a replacement for Fed Governor Adriana Kugler, who unexpectedly resigned from her position to pursue an academic career. They also expect a more urgent replacement for the BLS commissioner for reporting incorrect payrolls.

Although selecting the FOMC member is more critical for policy, Trump is also expected to make announcements from the Oval Office this evening, which may be closely watched.

*Past performance does not indicate future results.

FAQs:

Why did key US markets fall on August 5?

Weak ISM services data and tariff threats weighed on sentiment, causing indices to drop.

What did the latest ISM services report show?

Business activity, new orders, and employment fell, while inflation pressures spiked to a 2022 high.

What is the market expecting from the Fed?

Markets are pricing in a high probability of a rate cut at the September FOMC meeting.

What tariffs did Trump announce?

Trump said new tariffs on chips and pharmaceuticals would be imposed within a week. Taiwan-made chips face an extra tariff on top of an already 20% duty imposed on Taiwan.

How did tech stocks react to the tariff news?

Major tech stocks like NVDA, MSFT, AVGO, and META fell; PLTR jumped after beating estimates.

Which US banks were down, and why?

JPMorgan and Bank of America fell after Trump threatened an executive order over alleged discrimination.

What are investors watching this week of 3 August 2025?

Investors await Trump’s Fed governor replacement and possible Oval Office announcements.