Business sentiment in the U.S. services sector returned to expansion in July, after plummeting in June at the fastest pace since May 2020 and potentially quelling recent market concerns on an ongoing recession for the world's largest economy.

The ISM Services Purchasing Managers' Index (PMI) barometer rose from 48.8% to 51.4%, outpacing expectations of a surge to 51%.

A similar services-related survey, released by S&P Global, confirmed expansionary conditions for the U.S. private sector activity, although at a slower-than-expected pace. The S&P Global Composite PMI edged down from 54.8 to 54.3, missing an increase to 55. The S&P Global Services PMI eased from 55.3 to 55, falling short of a rise to 56.

July ISM Services PMI Report: Key Highlights

• The ISM Services PMI rose from 48.8% to 51.4% in July, above market expectations of 51% as monitored by TradingEconomics.
• The subindex for Business Activity rose from 49.6% to 54.5% in July.
• The subindex for New Orders rose from 47.3% to 52.4% in July, overcoming consensus estimates of 49.8%.
• The subindex for Prices rose from 56.3% to 57, above the predicted 55.8%.
• The subindex for Employment rose from 47.1% to 51.1%, well above the expected 46.5%.

"The increase in the composite index in July is a result of an average increase of 5 percentage points for the Business Activity, New Orders, and Employment indexes, offset by the 4.6-point drop in the Supplier Deliveries Index." Steve Miller, chair of the ISM Services Business Survey Committee, said.

Miller noted that businesses maintained a cautious approach ahead of the upcoming presidential election, with one respondent expressing worry about possible tariff increases.

Respondents also indicated that increased costs are impacting their businesses, with generally positive commentary on business activity being flat or expanding gradually.

"Another strong expansion of business activity in the service sector, which over the past two months has enjoyed

its best growth spell for over two years, contrasts with the deteriorating picture seen in the manufacturing sector,

where output came close to stalling in July," commented Chris Williamson, chief business economist at S&P Global Market Intelligence.

Market Reactions

Global financial markets experienced a significant broad-based selloff on Monday, driven by widespread investor fears regarding U.S. economic growth following last week's disappointing data.

The release of the ISM Services PMI has temporarily halted risk aversion and sparked an attempt to reverse the recent market movements.

The U.S. dollar index (DXY) rose minutes after the release, although the broader dollar gauge, tracked by the Invesco DB USD Index Bullish Fund ETF (UUP  ), remained in the red by 0.5%.

U.S. major equity indices gained amid diminishing recession fears, with the S&P 500, tracked by the SPDR S&P 500 ETF Trust (SPY  ), trimming session losses to 2.3%.

Other major asset movements following the ISM Services PMI print included:

The Nasdaq 100, as monitored through the Invesco QQQ Trust (QQQ  ), rallied by 500 points to 17,950 levels, shrinking the daily drop to negative 2.4%.

The Japanese yen, as tracked by the Invesco CurrencyShares Japanese Yen Trust (FXY  ), slightly reversed gains vis-à-vis the U.S. dollar.

Long-dated Treasuries, as followed by the iShares 20+ Year Treasury Bond ETF (TLT  ), trimmed gains.

Gold, as tracked by the SPDR Gold Trust (GLD  ), extended losses to -2%.