The S&P 500 (SPX) closed lower yesterday. Despite the index’s performance, sector breadth improved slightly on Tuesday with Health Care (XLV), Consumer Staples (XLP), and Financials (XLF) joining Energy (XLE), which led again.

The Technology Sector (XLK), which is around 40% of the S&P 500 market cap, led the downside, closing -1.9% from -0.2% on Monday. A couple of software (IGV) names were higher, reversing the prior day’s losses.

Unpleasant Drawdowns

Chips got smashed, erasing Monday’s advance and then some. Memory stocks were among the weakest areas as well, with pronounced selling across optical and electronic manufacturing names. Despite this heavy pressure, the Nasdaq-100 (NDX) continues to hold right above its 50-day moving average.

Financial media was pointing to rising rates as the force behind the decline in growth stocks; however, we think these headlines could have added extra pressure.

In addition, average token costs collapsed to their lowest level since December as models became more efficient. Lower prices mean artificial intelligence (AI) companies need more usage to keep the same revenue, adding increasing pressure on margins and returns.

Anthropic passed OpenAI in quarterly revenue for the first time, more than doubling to $11.6 billion while OpenAI grew 18% to $6.7 billion. The main concern here is profitability; OpenAI’s operating loss widened from $9.3 billion to $12.3 billion, even as Anthropic moved into a small operating profit. This intensifies pressure for both companies as they prepare for potential IPOs.

This comes as OpenAI recently lowered the price of one of its models by 80% to compete with new open-source models from Kimi and DeepSeek.

Today’s Session

The market is set to open higher as oil and rates move lower.

Long-term bond yields are seeing a relatively sharp pullback this morning. This comes as Treasury announced it will increase the size of its nominal long-end liquidity support buybacks beginning September 9, and ahead of the July FOMC minutes due this afternoon. This is aimed at providing some relief to the long end of the yield curve.

After the bell yesterday, Trump announced a trade deal with Canada and a pause in tariffs on the country.

Moderna (MRNA) and Merck (MRK) are getting a notable boost this morning after they declared success in their phase 3 trial for personalized cancer vaccines. While this is just the trial for treating adjuvant melanoma, and other cancer trials are still in progress, it could be a huge step for the biotech.

In semiconductor news, Samsung raised some prices for advanced foundry services due to demand tightening capacity.

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