Key Takeaways
- US Services Sector Presents Mixed Signals: The ISM Non-Manufacturing PMI for July fell to 50.1, missing estimates and declining from the previous month, while the S&P Global Services PMI rose to 55.7, exceeding expectations, indicating a divergent view on the health of the services economy.
- Wells Fargo Investment Institute Adjusts Portfolio Strategy: Wells Fargo (WFC) has downgraded its ratings for the energy sector and US small-cap equities to 'Neutral' and 'Unfavorable' respectively, while simultaneously upgrading US intermediate-term taxable fixed income to 'Most Favorable'.
- Major AI Firms Join Federal Supplier List: OpenAI, Google (GOOGL), and Anthropic have been added to the US federal AI supplier list, signaling an accelerated adoption of artificial intelligence tools across government agencies.
- European Corporate Earnings Outlook Improves: European companies are now projected to report a 3.1% increase in second-quarter earnings, an improvement from earlier forecasts, despite an expected 2.0% fall in revenue.
- Caterpillar Forecasts Robust Q4 Construction Growth: Heavy equipment manufacturer Caterpillar (CAT) anticipates strong growth in the construction sector for the fourth quarter, providing a positive outlook for the industry.
The U.S. services sector is showing a mixed performance in July, according to recent economic data. The Institute for Supply Management (ISM) Non-Manufacturing PMI registered 50.1, a decline from the prior month's 50.8 and below the estimated 51.5. This suggests a slowdown in the services economy. In contrast, the S&P Global Services PMI finalized at 55.7 for July, an increase from 55.2 and surpassing the 55.2 estimate, indicating a robust expansion in service sector activity. The S&P Global Composite PMI also rose to 55.1 from 54.6, exceeding forecasts.
In the financial sector, Wells Fargo Investment Institute has made significant shifts in its investment recommendations. The institute has lowered its rating for the energy sector from 'Favorable' to 'Neutral' within commodities. Conversely, it has upgraded US intermediate-term taxable fixed income to 'Most Favorable' from 'Neutral'. Furthermore, Wells Fargo (WFC) downgraded US small-cap equities to 'Unfavorable' from 'Neutral', citing concerns over heavy tariff exposure and weak earnings.
The US government is moving forward with the adoption of artificial intelligence, officially adding leading AI firms OpenAI, Google (GOOGL), and Anthropogenic to its federal AI supplier list. This development is expected to streamline the procurement and integration of advanced AI tools across civilian federal agencies.
Across the Atlantic, the outlook for European corporate earnings in the second quarter has improved. Latest LSEG I/B/E/S data indicates that European companies are now expected to report an average earnings increase of 3.1% for Q2, a notable rise from the 1.8% increase anticipated just a week prior. While revenue is still projected to fall by 2.0% in Q2, this represents a less severe decline than the 3.3% fall previously forecast. The European Central Bank (ECB) also reported an increase in its foreign exchange reserves by €100 million, reaching a total of €324.3 billion.
In the industrial sector, Caterpillar (CAT) is forecasting a strong fourth quarter for construction growth. This positive prediction for the heavy equipment manufacturer signals optimism for the broader construction industry.
Geopolitical developments continue to draw attention, with Brazil's Foreign Minister informing Senator Marco Rubio that while Brazil is open to discussing trade, its sovereignty remains non-negotiable. This statement comes amid recent tensions related to potential US tariffs on Brazilian exports.
Following the market open, major US indices showed minimal movement. The S&P 500 (SPX) edged up 0.06% to 6,334.03, while the NASDAQ (IXIC) gained 0.08% to 21,070.97. The Dow Jones (DJI) remained largely flat, down 0.00% at 44,172.44.
Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications.