Economic Data Supports Stocks, but Sparse Year-End Volume Limits Upside

U.S. stock benchmarks faced modest headwinds Tuesday as markets grappled with directional uncertainty amid thin holiday-season trading volumes. The S&P 500 Index declined 0.10%, while the Dow Jones Industrials retreated 0.15%, and the Nasdaq 100 fell 0.17%. Futures contracts also reflected the weakness, with March E-mini S&P futures down 0.11% and March E-mini Nasdaq futures dropping 0.17%.

Economic Data Beats Expectations

Despite the market’s subdued tone, domestic economic indicators delivered encouraging news. The October S&P Case-Shiller composite-20 home price index advanced 0.3% month-over-month and 1.3% year-over-year, surpassing forecasts of 0.1% and 1.1% respectively. December’s MNI Chicago PMI surged 9.2 points to 43.5, significantly outpacing the anticipated 40.0 reading. These stronger-than-expected numbers provided some support to equity prices in an otherwise cautious session.

Rising Bond Yields Weigh on Equities

Treasury yields moved higher as the 10-year note climbed 2.2 basis points to 4.132%, creating headwinds for stock valuations. March 10-year T-notes declined 4 ticks amid year-end fund liquidation pressures. Bonds found some refuge from safe-haven flows as stock weakness boosted government debt demand. Overseas, European government bond yields extended their advance, with the 10-year German bund yield reaching 2.854% (up 2.5 bp) and the 10-year UK gilt yield moving to 4.491% (up 0.4 bp).

Cross-Border Market Moves

European markets outperformed during the session, with the Euro Stoxx 50 climbing to 1.5-month highs and gaining 0.76%. Asia’s performance proved mixed—China’s Shanghai Composite closed flat, while Japan’s Nikkei Stock 225 fell to 1-week lows, ending down 0.37%. The divergent performance underscored the thin trading environment where volumes were insufficient to establish clear directional momentum.

Sector Strength Led by Energy

Energy equities emerged as the session’s outperformers, capitalizing on crude oil’s continued rally following Monday’s 2% advance. Devon Energy, Diamondback Energy, Halliburton, APA Corp, ConocoPhillips, SLB Ltd, and Occidental Petroleum all climbed more than 1%.

In other notable moves, Molina Healthcare surged more than 3% to lead S&P 500 gainers after investment managers highlighted its exceptional expense ratios and underwriting performance. Boeing advanced more than 1%, supported by an $8.58 billion U.S. Air Force contract award. Citigroup declined more than 1% after announcing an anticipated $1.1 billion after-tax loss on its remaining Russian business sale to Renaissance Capital.

Holiday Calendar and Fed Expectations

Tuesday represented the final trading session of the year for major equity markets including Germany, Japan, and South Korea. Market participants are pricing in just a 16% probability of a -25 basis point Fed rate cut at the January 27-28 policy meeting. The minutes from December’s FOMC gathering are scheduled for release later today, with unemployment claims and manufacturing data expected to frame the remainder of the week.

Historically, December’s final two weeks have favored equity rallies, with the S&P 500 advancing roughly 75% of the time since 1928, averaging gains of 1.3%—though thin seasonal trading volumes this year may dampen expected year-end strength.