SP 500 Falls 0.4% as Health Care Stocks Plunge, Tech Gains Limit Losses

The S&P 500 saw a decline of 0.4% amid a tumultuous session on Wall Street, marking its third consecutive drop. This downturn followed an initial rally from major technology firms that ultimately lost momentum, overshadowed by a significant downturn in the health care sector. Although the S&P 500 had reached a record high on Monday, it managed a 2.2% gain for July and has risen by 7.8% so far this year.

The Dow Jones Industrial Average experienced a sharper fall of 0.7%, while the Nasdaq composite closed slightly down by less than 0.1%. Within the S&P 500, approximately 70% of stocks declined. Health care stocks notably led this downward trend following the White House's announcement urging major pharmaceutical companies to enact price reductions and other adjustments within 60 days. Significant losses were recorded by Eli Lilly & Co., UnitedHealth Group, and Bristol-Myers Squibb, which fell by 2.6%, 6.2%, and 5.8% respectively.

Meanwhile, gains in technology stocks provided some mitigation against broader market losses. Meta Platforms, the holding company for Facebook and Instagram, saw its stock surge by 11.3% following impressive sales and profit results, despite substantial investment in artificial intelligence. Microsoft shares rose by 3.9% after outperforming analyst predictions and delivering a positive update on its Azure cloud computing platform, which is central to the company's AI strategy. The enthusiasm surrounding the potential of AI has frequently driven gains within the technology sector.

In terms of figures, the S&P 500 concluded the day down by 23.51 points at 6,339.39. The Dow finished 330.30 points lower at 44,130.98, and the Nasdaq dropped 7.23 points to end at 21,122.45.

Market participants continue to focus on earnings outside the tech sector, given the busy schedule of corporate financial disclosures this week. CVS Health shares fell 0.3%, despite surpassing expectations for the second quarter and raising its forecast for the full year.

Economic indicators provide further context to market movements. The Commerce Department reported a year-over-year price increase of 2.6% in June, as indicated by the personal consumption expenditures index— the Federal Reserve's preferred measure of inflation. This uptick slightly exceeded economist predictions, rising from a rate of 2.4% in May. Earlier readings from the consumer price index had similarly indicated increased inflation in June.

Complicating the economic landscape are ongoing concerns regarding the effects of tariffs. Inflation figures are being closely analyzed by businesses and the Federal Reserve to assess the ramifications of shifting tariff policies under President Donald Trump. These tariffs have prompted warnings from companies such as Ford and Hershey’s concerning both recent and projected financial performance.

While the complexities of trade policy decisions persist, the Federal Reserve has opted to maintain its benchmark interest rate, refraining from adjustments over its past five meetings, including last Wednesday's session. The Fed aims to curb inflation down to its target of 2%, but inflation has remained stubbornly above this target level.

The broader economic environment also faces uncertainty concerning potential rate cuts, as market expectations for action at the Fed’s next meeting in September are shifting. Traders now estimate a 39% probability of a rate cut, reflecting a notable decrease from a 58.4% likelihood a week prior and a 75.4% probability a month earlier.

In the bond market, yields remained stable. The 10-year Treasury yield was unchanged at 4.37%, and the two-year Treasury yield held at 3.94% from the previous session. Asian and European markets delivered mixed results underlining the global market's varied response to ongoing economic data and policy shifts.