Stocks Fall Slightly in Thin Holiday Trade

The S&P 500 Index ($SPX) (SPY) on Tuesday closed down -0.14%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.20%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -0.25%.  March E-mini S&P futures (ESH26) fell -0.14%, and March E-mini Nasdaq futures (NQH26) fell -0.22%.

Stock indexes settled slightly lower on Tuesday in thin, year-end trading. Higher bond yields were negative for stocks, as the 10-year T-note yield rose by 2 bp to 4.13%.  Stock losses were limited by some positive carryover from Tuesday's rally in European stocks, as the Euro Stoxx 50 index climbed to a 1.5-month high. 

Tuesday marks the last trading day of the year for many equity markets, including Germany, Japan, and South Korea. 

US economic news on Tuesday was better than expected and supportive of stocks.  The Oct S&P Case-Shiller composite-20 home price index rose +0.3% m/m and +1.3% y/y, stronger than expectations of +0.1% m/m and +1.1% y/y.  Also, the Dec MNI Chicago PMI rose +9.2 to 43.5, stronger than expectations of 40.0.

The minutes of the December 9-10 FOMC meeting were neutral to slightly hawkish as some policymakers saw keeping interest rates on hold appropriate "for some time," while some judged further rate cuts were likely appropriate if inflation continues to decline over time. Also, "several participants pointed to the risk of higher inflation becoming entrenched and suggested that lowering the policy rate further in the context of elevated inflation readings could be misinterpreted as implying diminished policymaker commitment to the 2% inflation objective."

Seasonal factors are bullish for stocks.  According to data from Citadel Securities, since 1928, the S&P 500 has risen 75% of the time in the last two weeks of December, climbing 1.3% on average.

Market attention this holiday-shortened week will focus on US economic news.  On Wednesday, initial weekly unemployment claims are expected to increase by +5,000 to 219,000.  On Friday, the Dec S&P manufacturing PMI is expected to remain unrevised at 51.8. 

The markets are discounting the odds at 15% for a -25 bp rate cut at the FOMC's next meeting on January 27-28.

Overseas stock markets settled mixed on Tuesday.  The Euro Stoxx 50 climbed to a 1.5-month high and closed up by +0.77%.  China's Shanghai Composite closed unchanged.  Japan's Nikkei Stock 225 fell to a 1-week low and closed down -0.37%.

Interest Rates

March 10-year T-notes (ZNH6) on Tuesday closed down -2.5 ticks.  The 10-year T-note yield rose +1.8 bp to 4.128%.  Mar T-notes were under pressure on Tuesday amid year-end liquidation by bond funds. Also, comments from President Trump on Monday night that undermine Fed independence weighed on T-notes, as he said he "still might" fire Fed Chair Powell.  In addition, Tuesday’s minutes of the December 9-10 FOMC meeting were slightly hawkish and bearish for T-notes.  Tuesday's stock market weakness boosted some safe-haven demand for government debt, limiting losses in T-notes. 

European government bond yields moved higher on Tuesday.  The 10-year German bund yield rose +2.6 bp at 2.855%.  The 10-year UK gilt yield rose +1.2 bp to 4.498%.

Spain Dec CPI (EU harmonized) rose +3.0% y/y, right on expectations.  Dec core CPI rose +2.6% y/y, stronger than expectations of +2.5% y/y.

Swaps are discounting a 1% chance of a +25 bp rate hike by the ECB at its next policy meeting on February 5.

US Stock Movers

Pharmaceutical companies were under pressure on Tuesday, weighing on the broader market.  Insmed Inc (INSM), Gilead Sciences (GILD), and Vertex Pharmaceuticals (VRTX) closed down more than -1%.  Also, Regeneron Pharmaceuticals (REGN) closed down -0.88%.

Energy companies moved higher on Tuesday.  Occidental Petroleum (OXY) closed up more than +2%, and Diamondback Energy (FANG) closed up more than +1% to lead gainers in the Nasdaq 100.  Also, Devon Energy (DVN), Halliburton (HAL), Baker Hughes (BKR), APA Corp (APA), ConocoPhillips (COP), and SLB Ltd (SLB) closed up more than +1%.

Jabil Inc (JBL) closed down more than -1% on signs of insider selling after an SEC filing showed EVP Borges sold $2.3 million of shares last Tuesday. 

Citigroup (C) closed down -0.82% after it said it expects to post a roughly $1.1 billion after-tax loss on the sale of its remaining business in Russia to Renaissance Capital. 

Ultragenyx Pharmaceutical (RARE) closed up more than +14%, recovering some of Monday’s -42% plunge when Jeffries said the stock could rebound in 2026 ahead of a late-stage update on its osteoporosis drug.

Molina Healthcare (MOH) closed up more than +2% after money manager Burry highlighted the company's record of strong expense ratios and underwriting results.

Newmont Mining (NEM) closed up more than +2%, and Hecla Mining (HL) closed up more than +1% after silver prices surged more than +10%. 

Earnings Reports(12/31/2025)

CoastalSouth Bancshares Inc (COSO), Golden Matrix Group Inc (GMGI), Immersion Corp (IMMR).