Stocks Settle Mixed on Soft US Economic News

The S&P 500 Index ($SPX) (SPY) on Tuesday closed down by -0.24%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down by -0.62%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up by +0.26%.  December E-mini S&P futures (ESZ25) fell -0.25%, and December E-mini Nasdaq futures (NQZ25) rose +0.25%.

Stock indexes settled mixed on Tuesday, with the S&P 500 falling to a 3-week low.  The broader market was under pressure on Tuesday as US financial reports pointed to a sluggish economy.  The Nov unemployment rate rose to a 4-year high, Oct retail sales stagnated, and US manufacturing activity slowed to a 5-month low.  Also, a slump in energy producers on Tuesday weighed on the broader market after WTI crude oil fell more than -2% to a 4.75-year low. However, strength in the Magnificent Seven technology stocks on Tuesday was positive for the overall market, lifting the Nasdaq 100 from a 3-week low into positive territory.

Stocks also found some support from Tuesday’s Fed-friendly US economic reports on Nov payrolls and Oct retail sales, which bolster expectations that the Fed will continue to ease monetary policy.  Also, wage pressures are easing as Nov hourly earnings posted their smallest year-on-year increase in 4.5 years.  The 10-year T-note yield fell -2 bp to 4.15%. 

US Nov nonfarm payrolls rose by +64,000, stronger than expectations of +50,000.  Oct nonfarm payrolls fell by -105,000, weaker than expectations of -25,000.  The Nov unemployment rate rose +0.1 to a 4-year high of 4.6%. 

US Nov average hourly earnings rose +0.1% m/m and +3.5% y/y, weaker than expectations of +0.3% m/m and +3.6% y/y, with the +3.5% y/y gain the smallest year-on-year increase in 4.5 years.

US Oct retail sales were unchanged m/m, weaker than expectations of +0.1% m/m.  However, Oct retail sales ex-autos rose +0.4% m/m, stronger than expectations of +0.2% m/m.

The US Dec S&P manufacturing PMI fell -0.4 to a 5-month low of 51.8, weaker than expectations of 52.1.

Comments on Tuesday from Atlanta Fed President Raphael Bostic were hawkish and negative for stocks when he said, "After wrestling with all the considerations, today I continue to view price stability as the clearer and more pressing risk despite shifts in the labor market."  He added that "he sees little to suggest that price pressures will dissipate before mid to late 2026, at the earliest, and expects inflation to remain above 2.5% even at the end of 2026."

This week's market focus will be on US economic news.  On Thursday, weekly initial unemployment claims are expected to fall -11,000 to 225,000.  Also, Nov CPI is expected to be +3.1% y/y, and Nov core CPI is expected to be +3.0% y/y.  On Friday, Nov existing home sales are expected to be up +1.2% m/m to 4.15 million. Also, the University of Michigan Dec consumer sentiment index is expected to be revised upward by +0.2 to 53.5 from the previously reported 53.3.

The markets are discounting a 24% chance that the FOMC will cut the fed funds target range by 25 bp at the next FOMC meeting on January 27-28.

Overseas stock markets settled lower on Wednesday.  The Euro Stoxx 50 closed down -0.60%.  China’s Shanghai Composite fell to a 2-month low and closed down -1.11%.  Japan’s Nikkei Stock 225 slid to a 2-week low and closed down -1.56%.

Interest Rates

March 10-year T-notes (ZNH6) on Tuesday closed up by +7.5 ticks.  The 10-year T-note yield fell -2.7 bp to 4.145%.  T-notes moved higher on Tuesday after the US Nov employment rate rose to a 4-year high and Nov average hourly earnings posted their smallest year-on-year increase in 4.5 years.  Also, Oct retail sales rose less than expected, and the Dec S&P manufacturing PMI fell to a 5-month low, which are dovish factors for Fed policy.  In addition, falling inflation expectations were supportive of T-notes as the 10-year breakeven inflation rate fell to a 2-week low on Tuesday at 2.231%.

Gains in T-notes were limited on Tuesday after a report on US Oct retail sales ex-autos rose more than expected, a hawkish factor for Fed policy. Also, hawkish comments from Atlanta Fed President Raphael Bostic were bearish for T-notes when he said elevated price pressures are expected to persist through most of next year.

The steepening yield curve is bearish for T-note prices. Steepening trades occur when bond investors buy short-term government debt and sell long -term debt.  The yield curve has steepened since last Wednesday’s FOMC meeting, when the Fed said it would begin purchasing up to $40 billion of short-term T-bills a month to boost liquidity in the financial system. Longer-term Treasury securities are also under pressure from concerns about inflation and the Fed’s independence. 

European government bond yields are mixed today.  The 10-year German bund yield fell -0.8 bp to 2.845%. The 10-year UK gilt yield rose to a 3-week high of 4.561% and finished up +2.3 bp to 4.518%.

The Eurozone Dec S&P manufacturing PMI unexpectedly fell -0.4 to 49.2, weaker than expectations of an increase to 49.9 and the steepest pace of contraction in 8 months.

The German Dec ZEW survey expectations of economic growth unexpectedly rose by +7.3 to a 5-month high of 45.8, stronger than expectations of a decline to 38.4.

The UK Dec S&P manufacturing PMI rose +1.0 to 51.2, stronger than expectations of 50.3 and the fastest pace of expansion in 15 months.

Swaps are discounting a 0% chance for a -25 bp rate cut by the ECB at its next policy meeting on Thursday.

US Stock Movers

Energy producers and energy service providers sold off on Tuesday and weighed on the broader market, after WTI crude oil fell more than 3% to a 4.75-year low.  Phillips 66 (PSX) closed down more than -6% to lead losers in the S&P 500, and Baker Hughes (BKR) closed down more than -3% to lead losers in the Nasdaq 100.  Also, APA Corp (APA) closed down more than -5%, and Marathon Petroleum (MPC) and Halliburton (HAL) closed down more than -4%.  In addition, Occidental Petroleum (OXY), ConocoPhillips (COP), Diamondback Energy (FANG), and Valero Energy (VLO) closed down more than -3%. Finally, Devon Energy (DVN), Exxon Mobil (XOM), and Chevron (CVX) closed down more than -2%. 

The strength of the Magnificent Seven technology stocks on Tuesday was a supportive factor for the overall market.  Tesla (TSLA) closed up more than +3%, and Meta Platforms (META) closed up more than +1%.  Also, Nvidia (NVDA) closed up +0.81%, Microsoft (MSFT) closed up +0.33%, Apple (AAPL) closed up +0.18%, and Amazon.com (AMZN) closed up +0.01%.  Bucking the trend, Alphabet (GOOGL) closed down -0.54%.

Booz Allen Hamilton Holding Corp (BAH) closed down more than -7% after it announced that CFO Calderone will resign from the company effective February 1.

Humana (HUM) closed down more than -6% after forecasting full-year adjusted EPS of $17.000, below the consensus of $17.06.

Pfizer Inc (PFE) closed down more than -3% after forecasting 2026 revenue of $59.5 billion to $62.5 billion, the midpoint below the consensus of $61.63 billion.

Illinois Tool Works (ITW) closed down more than -3% after Goldman Sachs downgraded the stock to sell from neutral with a price target of $230.

Archer-Daniels-Midland (ADM) closed down more than -3% after Morgan Stanley downgraded the stock to underweight from equal weight with a price target of $50.

Comcast (CMCSA) closed up more than +5% to lead gainers in the S&P 500 and Nasdaq 100 after CNBC commented about trading activity in the swaps market that may suggest involvement by activist investors.

Cognex (CGNX) closed up more than +5% after Goldman Sachs double-upgraded the stock to buy from sell with a price target of $50. 

Estee Lauder (EL) closed up more than +3% after Bank of America named the stock as its top pick for beauty for 2026, with a price target of $130.

Robinhood Markets (HOOD) closed up more than +3% after Trust Securities initiated coverage on the stock with a buy recommendation and a price target of $155. 

Okta Inc (OKTA) closed up more than +2% after Jeffries upgraded the stock to buy from hold with a price target of $125.

Southwest Airlines (LUV) closed up more than +1% after Barclays upgraded the stock to overweight from equal weight with a price target of $56.

Earnings Reports(12/17/2025)

General Mills Inc (GIS), Jabil Inc (JBL), Micron Technology Inc (MU), Toro Co/The (TTC).