Rally Pauses for Hot Earnings, Cool Data: Stock Market Today
Markets were mostly mixed Tuesday after decisive moves Friday and Monday.
Stocks opened modestly higher but closed modestly lower Tuesday amid a mix of solid earnings reports and soft incoming data. More than two-thirds of S&P 500 companies have reported this season, and trends remain broadly positive.
Investors, traders and speculators will cast wary eyes on the economic calendar for the rest of August and through to the Federal Open Market Committee meeting in mid-September for clues about inflation, employment and growth.
"This earnings announcement season is definitely heating up," writes Louis Navellier of Navellier & Associates. "As always, our best defense remains a strong offense of fundamentally superior stocks."
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Navellier notes that President Donald Trump has announced new tariffs against India, designed to penalize it for buying oil from Russia. Trump also said a trade deal with China is "very close" but threatened new tariffs against the European Union if it doesn't meet recent commitments.
Meanwhile, the Institute for Supply Management said its Services Purchasing Managers Index declined to 50.1 in July, below a FactSet-compiled consensus forecast of 51.3 and down from 50.8 in June.
According to the Commerce Department, the U.S. trade deficit was narrower than expected in June, $60.2 billion vs a forecast of $62.6 billion and down from $71.7 billion in May. Imports were down 3.7%, and exports were down 0.5%. A narrower trade deficit should provide a boost to gross domestic product.
"The service sector is teetering on slipping into a contraction," Navellier observes. "Overall, the deceleration in the ISM service sector PMI is reigniting recession fears and is expected to coax the Fed to cut key interest rates."
Indeed, CME FedWatch now shows a 91.4% probability of a 25-basis-point rate cut following the next Fed meeting that runs September 16-17.
And, though federal funds rate futures pricing shows a 0.0% probability of a double cut, more and more market participants are wondering not if the central bank will cut, but by how much.
At the closing bell, the blue-chip Dow Jones Industrial Average was down 0.1% to 44,111. The broad-based S&P 500 Index shed 0.5% to 6,299, and the tech-heavy Nasdaq Composite had lost 0.7% to 20,916.
Palantir obliterates the "Rule of 40"
Valuation concerns earn it a place on the list of the riskiest S&P 500 stocks right now, but Palantir Technologies (PLTR, +7.9%) continues to post impressive growth and profitability numbers and to be rewarded for it by investors.
Now up more than 112.4% year to date and 549.4% over the trailing 12 months, PLTR crossed the $400 billion market capitalization threshold Tuesday – this was a $54 billion stock a year ago. And PLTR appears well on its way to a trillion after management reported what co-founder and CEO Alex Karp called a "phenomenal" second quarter.
Total revenue growth of 14% on a sequential basis and 48% on an annual basis pushed Palantir past the billion-dollar market for quarterly revenue for the first time, $1.004 billion to be exact.
"We continue to see the astonishing impact of AI leverage," Karp noted, adding that Palantir's "rule of 40" score – the sum of its year-over-year revenue growth rate and its adjusted operating margin – was 94%.
Palantir also guided to the highest sequential quarterly revenue growth in its history, Karp said, adding that its forecast represents 50% year-over-year growth.
As UBS Global Research analyst Karl Keirstead notes, Palantir reported its eighth straight quarter of revenue growth acceleration and raised its full-year growth rate guidance from 36% to 45% "without compromising on the non-GAAP margin target," which is up to 46%.
"But valuation at 136 times estimated 2026 free cash flow remains our key hurdle," the analyst concludes, "and we remain Neutral rated."
Wedbush analyst Dan Ives is well over that and any other hurdle. After another "eye-popping" quarter, Ives reiterated his Outperform (or "Buy") rating on PLTR and raised his 12-month target price from $160 to $200.
Ives cites "continued hyper-growth demand for the company's AI product suite with the use-case era of the AI Revolution now here." Ives has also dubbed Palantir the "Messi of AI."
"We believe in the next few years," Ives concludes, "Palantir has the potential to be a trillion-dollar market cap as the AI Revolution takes hold."
To the moon... but not today
Constellation Energy (CEG, -3.2%) underperformed Tuesday but remains one of the best ways to invest in the nuclear revolution, even though it didn't enjoy a bounce from the Trump administration's latest nuclear-related initiatives.
Following up on executive orders issued in May, Transportation Secretary and interim NASA Administrator Sean Duffy announced a plan to build a nuclear reactor on the moon during a press conference Tuesday.
"We're in a race with China to the moon," Duffy explained. "And to have a base on the moon, we need energy."
Constellation Energy takes its turn on the earnings calendar before Thursday's opening bell.
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