Markets Waver as Tariffs Loom, Economic Data Dims Outlook

S&P 500 Retreats Amid Stagflation Fears and Trade Tensions

Equities faced downward pressure Tuesday as investors grappled with discouraging economic indicators and renewed threats of tariffs, heightening anxieties about the health of the U.S. economy.

Economic Headwinds Bite

The S&P 500 index slipped 0.4%, while the Nasdaq Composite saw a 0.5% decline. The Dow Jones Industrial Average remained relatively unchanged. This pullback follows a volatile week, which saw the Dow experience a significant drop on Friday after a weaker-than-anticipated jobs report suggested a cooling labor market. The index had, however, recouped those losses with a substantial surge on Monday.

Adding to market concerns, the ISM Services index reported flatlining activity in July. This development amplified worries of stagflation—a scenario characterized by stagnant economic growth alongside high inflation and unemployment. As services constitute roughly 70% of the U.S. economy, a deceleration in this sector signals potential future challenges.

S&P 500, 1-day

Tariff Threats Re-emerge

Market sentiment was further dampened by comments from President Donald Trump to CNBC, indicating impending tariffs on semiconductor chips and pharmaceuticals. “We’re going to be announcing on semiconductors and chips, which is a separate category, because we want them made in the United States,” Trump stated, promising a new plan “within the next week or so.” This signals a potential escalation in trade policy.

Company-Specific Moves

Defense technology firm Palantir emerged as a standout performer, with its shares climbing 7% after announcing its revenue had surpassed $1 billion for the first time. In contrast, industrial giant Caterpillar experienced an earnings miss, leading to an initial dip in its stock, though it later traded marginally higher. Eaton’s shares fell 6% following what was described as disappointing financial guidance.

“Today we’re seeing the market pull back a little bit, [but] equities have been on a nice run. We’re probably due for a period of consolidation, some backing and filling, so to speak. Clearly, valuations are elevated. This is not a cheap market.”

—Terry Sandven, Chief Equity Strategist at U.S. Bank Asset Management

Despite current market volatility, Terry Sandven of U.S. Bank Asset Management noted that favorable conditions persist. He highlighted benign inflation, the prospect of lower interest rates, and rising corporate earnings as supportive factors for a “risk-on bias.”

The S&P 500 currently trades at a forward price-to-earnings ratio of approximately 20.5, which is above its 5-year historical average of around 18.2, suggesting elevated valuations in the broader market (FactSet, August 2025).