Stocks slip as tech lags and financials stay soft; small caps, health care and energy buck the trend

Overview
U.S. equities finished mixed to lower into the close, with the large-cap benchmarks easing while small caps outperformed. The S&P 500 proxy SPY fell to 690.44 from a prior 693.77 (-0.5%). The Nasdaq-100 tracker QQQ slipped to 619.60 from 626.24 (-1.1%), as megacap technology underperformed. The Dow proxy DIA was essentially flat at 491.64 versus 491.94 (-0.1%). In contrast, small caps rallied: the Russell 2000 ETF IWM rose to 263.21 from 261.35 (+0.7%). Sector leadership rotated toward health care and energy, even as crude oil declined, while financials remained soft.

Macro backdrop: rates, inflation, and expectations
Treasury yields remain elevated on the long end relative to the front, with the most recent readings showing a positively sloped curve: 2-year at 3.54%, 5-year at 3.77%, 10-year at 4.19%, and 30-year at 4.83%. That configuration continues to signal higher term premia and growth/inflation risk discounted further out the curve. Long-duration Treasurys rallied today nonetheless, with TLT up to 88.33 from 87.82 (+0.6%) and IEF up to 96.49 from 96.30 (+0.2%), while the short-duration SHY edged to 82.88 from 82.85 (+0.03%). The bid for duration suggests some demand for safety and income against a backdrop of policy uncertainty and sector-specific headline risk.

Inflation data remain firm in level terms. The December CPI index stands at 326.03 and core CPI at 331.86 (levels; growth rates not provided). Anecdotally, the Federal Reserve’s Beige Book indicates more businesses are beginning to pass tariff-related cost increases to consumers, with only two of the twelve districts reporting slight price growth while the rest cited higher costs flowing through. That narrative is echoed by separate reporting that wholesale costs rose during the government shutdown, pointing to persistent inflation pressures in the pipeline. Even so, market-based inflation expectations look well-anchored near the Fed’s longer-run objective: the latest modeled readings peg 1-year at 2.60%, 5-year at 2.33%, and 10-year at 2.32%, with 30-year at 2.45% (model-based). In short, realized price levels remain elevated, pass-through may be reaccelerating on tariffs, but medium-term expectations are stable.

Equities: rotation under the surface
- Broad indexes: SPY (-0.5%) and QQQ (-1.1%) declined, while DIA (-0.1%) was nearly unchanged and IWM (+0.7%) outperformed. The factor mix suggests a mild de-risking from high-duration growth toward cyclicals/smaller caps, consistent with firmer long-end yields and a bid to value and domestic exposure at the margin.

- Sectors: Within the sector ETFs supplied, technology lagged and health care and energy led. XLK fell to 144.70 from 146.48 (-1.2%), tracking weakness in software and select AI beneficiaries flagged in recent days. Health care XLV rose to 157.86 from 156.74 (+0.7%), providing defensive ballast. Energy XLE gained to 43.18 from 42.85 (+0.8%) despite lower crude prices, likely reflecting company-specific strength (notably, Exxon Mobil’s stock hitting a new high per reporting) and improved cash flow visibility. Financials XLF edged lower to 54.16 from 54.23 (-0.1%), consistent with a “rough day” for the group noted intraday and a mixed set of bank earnings updates.

- Notable corporate and thematic drivers from headlines:
• Cybersecurity downdraft: Chinese authorities reportedly ordered domestic firms to stop using software from several U.S. and Israeli cybersecurity vendors, pressuring shares of Fortinet (FTNT) and Palo Alto Networks (PANW) among others. Separate coverage emphasized China’s crackdown roiling selected holdings. The theme weighed on parts of tech outside the megacaps and adds a new front to U.S.-China tech frictions.
• Large-cap software under pressure: Adobe (ADBE) remains under scrutiny at multiyear lows as analysts call for clearer AI monetization. A separate review cited Adobe and Salesforce (CRM) among the S&P 500’s laggards as investors reassessed AI-related threats and opportunities across software.
• Banks: While some large banks posted better-than-expected results and constructive commentary on the economy, financials as a group didn’t get traction today. One update highlighted Citigroup (C) trading higher despite a profit miss tied to previously disclosed Russia-related charges, while other pieces detailed mixed revenue results elsewhere and investor concerns over potential credit-card routing reforms pressuring Visa (V) and Mastercard (MA).
• Industrials and defense: Boeing (BA) received additional order momentum and was reported climbing to a two-year high, while separate coverage noted Boeing outpacing Airbus in orders last year. In defense, L3Harris (LHX) garnered attention after a notable government investment in a missile-motor maker, with shares described as surging into record territory.
• Energy majors: Exxon Mobil (XOM) was cited at a new high, even as crude prices eased on the day. Company-specific positioning and geopolitical dynamics continue to differentiate performance within energy.
• Airlines: Delta Air Lines (DAL) fell following a revenue shortfall in the wake of the shutdown, underscoring a still uneven recovery backdrop for select travel-exposed names.

Bonds
Treasurys rallied on the day across the curve as reflected in ETFs: TLT (+0.6%), IEF (+0.2%), and SHY (+0.03%). With the latest benchmark yield readings still at 4.19% (10-year) and 4.83% (30-year), the move in prices points to ongoing demand for quality duration even as inflation remains sticky in level terms. The shape of the curve (2-year at 3.54% vs. 10-year at 4.19%) suggests markets continue to discount some growth and policy-rate normalization over time, while requiring a term premium at the long end amid fiscal, inflation, and geopolitical uncertainties.

Commodities
- Precious metals: Gold and silver extended their strong runs. GLD rose to 425.94 from 421.63 (+1.0%). SLV surged to 84.56 from 78.60 (+7.6%), with separate reporting highlighting silver’s breakout above the $90 milestone and persistent investor interest despite higher trading costs at the futures exchange. The precious-metals bid is consistent with hedging demand against policy risk and geopolitical uncertainty, as well as momentum dynamics within commodities.
- Energy: Oil retreated after headlines suggested a reduced likelihood of immediate U.S. military action against Iran. USO fell to 72.61 from 73.48 (-1.2%). Natural gas slumped sharply, with UNG down to 10.24 from 11.32 (-9.6%), reflecting continued volatility and weak seasonal demand signals. Broad commodities via DBC ticked higher to 23.41 from 23.37 (+0.2%). The divergence—metals firm, energy soft—maps to today’s headline flow and positioning.

FX and crypto
- FX: EURUSD was essentially flat on the session, marking 1.1643 versus an open of 1.1645, trading in a narrow 1.16425–1.16593 range. The muted move underscores a day dominated by idiosyncratic equity and commodity drivers rather than broad dollar shifts.
- Crypto: Digital assets were firmer. Bitcoin (BTCUSD) traded around 97,580 versus an open near 95,199 (+2.5%), traversing a 94,483–97,991 intraday range. Ethereum (ETHUSD) hovered near 3,381 versus a 3,337 open (+1.3%), within a 3,279–3,406 band. The bid in crypto was directionally aligned with the precious-metals strength, reflecting ongoing interest in alternative stores of value amid policy and geopolitical crosscurrents.

Policy and political context
Today’s tape was framed by two policy threads. First, tariffs and inflation pass-through: The Beige Book and wholesale-cost commentary point to businesses increasingly pushing higher costs onto consumers, a dynamic that could complicate the disinflation narrative even as expectations remain anchored. Second, institutional uncertainty: Multiple pieces highlighted tensions around Federal Reserve independence and broader regulatory policy—from credit-card routing changes to potential rate caps—and their market impacts (e.g., weakness in V and MA). These uncertainties help explain the bid for duration and safe-haven assets alongside rotation under the surface of equities.

Notable movers and sector takeaways from headlines
- Cybersecurity: FTNT and PANW softer on China’s reported procurement restrictions; an example of geopolitical risk hitting a niche of tech that had been relatively insulated.
- Large-cap software/AI: ADBE and CRM highlighted as under pressure as investors demand clearer AI monetization paths.
- Banks and payments: C higher on idiosyncratic drivers despite an earnings headline miss; V and MA under pressure amid routing-policy concerns.
- Industrials/defense: BA buoyed by orders and delivery momentum; LHX cited as surging on strategic investment news.
- Energy: XOM at new highs despite a down day for crude, reinforcing the importance of company-level catalysts.
- Airlines: DAL weak on revenue miss; travel demand and pricing power remain focal points.

Outlook
Heading into the next sessions, markets will continue to balance resilient growth signals with sticky cost pass-throughs and policy uncertainty. The curve’s positive slope and the bid for long duration suggest investors are willing to hold deflation/slowdown hedges even as inflation remains above target in level terms. Equity leadership may remain rotational: watch whether health care and energy leadership persists, and whether small caps can extend their relative strength alongside any further relief in rates-sensitive segments.

Key items to watch next
- Tariff policy and legal developments: The timing and outcome of high-profile tariff rulings remain in focus; headlines indicate continued uncertainty with implications for import prices, profit margins, and consumer inflation.
- Bank earnings and guidance: With financials lagging despite some beats, forward guidance on credit quality, deposit costs, and fee income will be pivotal.
- Geopolitics and energy markets: Any shift in Middle East risk premia will directly feed into oil and, by extension, headline inflation.
- Precious-metals momentum: Silver’s outsized gains and gold’s steady climb warrant monitoring for spillover into miners and broader risk sentiment.
- Policy and the Fed: Ongoing debate over the Fed’s independence and potential changes to credit-card routing or rate caps could drive relative moves in financials and payments.

Bottom line
The close featured index-level softness led by tech, resilience in defensives and commodity-linked names, and a further bid for duration and precious metals. With inflation expectations stable but tariff pass-throughs percolating, positioning appears to favor balance—maintaining exposure to cyclicals and small caps that benefit from improving activity, while carrying hedges through long-duration bonds and alternative stores of value.