Stock Market Stalls Amid Signs of Stagflation and Tariff Concerns

The S&P 500 slipped on Tuesday as the market remained "violently flat". The Nasdaq Composite dropped 0.7%, while tariffs continued to impact markets. The Institute for Supply Management's services industry survey unexpectedly fell, showing signs of stagflation.

The S&P 500 slipped on Tuesday, with the market remaining "violently flat" as investors grappled with ongoing tariff impacts and stagflationary concerns. The Nasdaq Composite dropped by 0.7%, continuing the volatile trend observed in recent weeks.

The Institute for Supply Management's (ISM) services industry survey unexpectedly fell, signaling a near-stagnant services sector. The July 2025 reading of 50.1 narrowly avoided contraction territory but marked a 0.7-point decline from June's 50.8, missing forecasts by 1.4 points [3]. This development underscores a fragile economic backdrop characterized by rising prices and weak demand, a scenario that economists term as stagflation.

The July report highlighted three key drivers of the slowdown: tariff-driven inflation, employment weakness, and trade disruptions. The Trump administration's tariffs, ranging from 10% to 41%, have pushed input costs to unsustainable levels, particularly in transportation, commodities, and labor-intensive industries. The services employment index plummeted to 46.4, the lowest since March 2025, reflecting hiring freezes and job losses in a sector that accounts for 70% of U.S. GDP. Additionally, new export and import orders contracted sharply, signaling a global trade slowdown [3].

These factors collectively paint a stark picture of stagflationary risks, where rising prices coexist with weak demand. In response to this challenging environment, investors must reassess sector allocations and prioritize resilience over growth. Overweighting sectors with pricing power, inelastic demand, and long-term tailwinds, such as infrastructure and industrial services, is recommended to navigate this period of uncertainty [3].

The S&P 500’s 1.6% drop capped a turbulent week, with the index down 11.8% from its February peak, teetering on correction territory. The Nasdaq, hit by declines in Big Tech (Amazon, Alphabet, and Meta fell over 2%), is down 16% from its recent high. Smaller companies, more vulnerable to economic slowdowns, saw the Russell 2000 index slide 3.6%. Sectors exposed to global trade bore the brunt, with retail stocks like Dollar Tree and Best Buy, reliant on Asian imports, dropping significantly. Bank stocks, including JPMorgan Chase (-2%) and Wells Fargo (-3%), fell on fears of reduced loan growth in a slowing economy. Conversely, gold futures surged to $3,400 an ounce, reflecting investor demand for safe havens [1].

The convergence of the Trump Tariffs and a faltering labor market has shattered the post-election rally that saw the S&P 500 gain 10% since November 2024. While Trump insists his policies will "make America wealthy again," critics argue they risk higher prices and slower growth. For now, Wall Street braces for more swings. As Harvard professor Jason Furman noted, "The jobs slowdown is here, and tariffs are jacking up prices." Whether the Fed cuts rates or trade talks yield concessions, the Trump Tariffs have thrust markets into uncharted territory, with investors left to navigate the fallout [1].

References:
[1] https://www.bbntimes.com/global-economy/trump-tariffs-and-weak-jobs-report-spark-stock-market-volatility
[2] https://www.nationthailand.com/business/economy/40052389
[3] https://www.ainvest.com/news/navigating-stagflation-sector-rotation-strategies-ism-services-pmi-slowdown-2508/