Wall Street traders drove stocks toward all-time highs while bond yields fell after weaker-than-estimated retail sales reinforced the case for the Federal Reserve to cut interest rates this year. Bitcoin tumbled.
Benchmark 10-year yields dropped to the lowest in about a month, with money markets seeing slightly higher odds of three Fed cuts this year – with two already fully priced in. While the S&P 500 edged only mildly higher after a two-day rally, about 350 of its shares gained. Chipmakers fell following a solid run, but an ETF tracking software firms extended a three-day advance to 9%.
US retail sales unexpectedly stalled in December, suggesting consumers provided less firepower for the economy as the year drew to a close.
So-called control-group sales — which feed into the government’s calculation of goods spending for gross domestic product — unexpectedly fell 0.1% after a downwardly revised gain in the prior month.
“It appears that there was less momentum behind the consumer in the final months of 2025 than previously assumed — a less encouraging departure point for growth estimates in 2026,” noted Vail Hartman at BMO Capital Markets.
This report “isn’t a disaster,” but it isn’t a constructive signal either, especially with lingering labor-market concerns and continued volatility across several asset classes, according to Bret Kenwell at eToro.
“Tomorrow’s jobs report will be key,” Kenwell said. “A weak print could push sentiment further toward risk-off if growth worries start to build, but a solid print may ease some of those concerns. It would be refreshing for markets to embrace an environment where good news is good and bad news is bad.”
Economists predict Wednesday’s payrolls to show a 68,000 increase for January. Such an outcome would be the best in four months. The unemployment rate is seen holding at 4.4%. There will be an annual revision to the jobs count — which is expected to reveal a notable markdown in the year through March 2025.
The S&P 500 rose 0.3%. The yield on 10-year Treasuries slid six basis points to 4.14%. The dollar wavered. Bitcoin sank to around $69,000. Gold traded near $5,000.
With the weaker-than-expected core retail sales, fourth-quarter gross domestic product estimates will get trimmed, said veteran Wall Street strategist Peter Boockvar.
“Consumer spending has finally caught up with consumer sentiment, and not in a good way,” said Chris Zaccarelli at Northlight Asset Management.
For months, consumers have been complaining about the cost of everything – and yet they kept spending, he said. However, the latest data show that consumers are no longer relentlessly increasing their level of spending, he noted.
“To the extent that the labor market holds up and consumers see more cash in their pockets from all of the pro-cyclical measures, then the economy can keep growing,” Zaccarelli said. “But if this is a more permanent change in spending patterns then it could be the canary in the coalmine that signals a more serious slowdown.”
The weaker-than-expected retail sales data for December won’t be enough to spoil the fourth quarter, according to Thomas Ryan at Capital Economics.
“But together with the likely weakness of spending in January amid extreme winter weather in most of the country, it leaves consumption growth on track to slow sharply this quarter,” he said.
The latest news on consumer spending did little to change the outlook for another rate cut, still priced in the Fed funds futures market for the next such move at the June policy meeting, according to Gary Schlossberg at Wells Fargo Investment Institute.
“We still expect looming tax refunds and windfall gains in the stock market to rekindle retail sales and other consumer spending in coming months,” he said.
“The US economy is also benefiting from both fiscal and monetary stimulus,” said Mark Haefele at UBS Global Wealth Management. “We expect a further two rate cuts of 25 basis points from the Federal Reserve this year, and financial conditions are already loose. Solid economic growth, in part supported by productivity gains, is supporting corporate earnings.”
He maintains his June 2026 and December 2026 S&P 500 price targets of 7,300 and 7,700.
Still, UBS Global Wealth Management downgraded the tech sector to neutral, citing a likely deceleration in hyperscale capex growth, the fact that hardware valuations look full and that uncertainty could linger around software names.
“We recommend that investors maintain strategic exposure to broad technology, AI, and the US market as a whole,” Haefele said. “Moving the US IT sector to neutral is also not a negative view on technology as a whole, and it is important to recognize that there is more to the AI opportunity than this sector.”
Last week’s steep drop in software stocks on concern about competition from artificial intelligence was likely overdone, according to Goldman Sachs Group Inc. Chief Executive Officer David Solomon.
“I think the narrative over the last week has been a little bit too broad,” Solomon said Tuesday at UBS Group AG’s conference in Key Biscayne, Florida. “There’ll be winners and losers — plenty of companies will pivot and do just fine.”
Software stocks have the scope to rebound from their historic slide as the market is pricing in unrealistic near-term disruption from artificial intelligence, according to JPMorgan Chase & Co. strategists.
“Given the positioning flush, overly bearish outlook on AI disruption of software and solid fundamentals, we believe the balance of risks is increasingly skewed towards a rebound,” said the team led by Dubravko Lakos-Bujas.
Meantime, equity markets are moving more money than ever before, blowing past $1 trillion in shares traded each day as heavy volume becomes the new norm. The jump reflects a broad-based increase in participation across the market.
The surge marks a sharp step-up from a year ago. Equity turnover averaged a record $1.03 trillion in January, a roughly 50% increase from the same period in 2025, according to data compiled by Bloomberg Intelligence. More than 19 billion shares traded hands daily over the span, the second-most ever, the data show.
Corporate Highlights:
- Alphabet Inc. is set to raise almost $32 billion in debt in less than 24 hours, showing the enormous funding needs of tech giants competing to build out their artificial intelligence capabilities — and the huge appetite from credit markets to fund them.
- Apple Inc. and Alphabet Inc.’s Google committed to making app store changes to ensure fairness to developers and consumers, the UK’s antitrust watchdog said, announcing the first assurances from Big Tech firms under the country’s digital market rules.
- Instagram owner Meta Platforms Inc. has paid for thousands of television commercials to promote its safety work with teens ahead of a landmark jury trial that will examine whether the company builds products deliberately to get kids addicted to social media.
- Paramount Skydance Corp. made enhancements to its hostile offer for Warner Bros. Discovery Inc., stepping up efforts to woo shareholders to its bid over a rival one from Netflix Inc.
- Spotify Technology SA jumped after the Swedish music streaming giant added a record number of users last quarter, far surpassing analysts’ expectations.
- Coca-Cola Co. offered a more conservative 2026 full-year sales outlook than expected, as the soda company works to boost its sales overseas.
- Coca-Cola will retain full ownership of Costa Coffee, but it’s reviewing the unit’s challenged business in China, the company’s chief financial officer said.
- Harley-Davidson Inc. reported an unexpected drop in motorcycle shipments, extending its struggles in the face of weak demand and punishing tariffs.
- Marriott International Inc. said it expects credit card fees to grow thanks to an increase in the royalty rate it charges branding partners.
- CVS Health Corp. missed Wall Street’s profit projections for 2026, failing to clear the high bar the market set for the company after saying in December all of its business units would grow this year.
- Under Armour Inc. was downgraded to sell from neutral by Citigroup Inc., which cited caution on the NAM brand turnaround, including “a highly competitive environment” and weak direct-to-consumer traffic.
- US regulators rejected Regenxbio Inc.’s gene therapy for Hunter syndrome, underscoring the hard line the Trump administration is taking on drug approvals for rare diseases.
- S&P Global Inc., a company that rates bonds and sells market data, slumped as much as 11% after the company reported a 2026 profit forecast that fell short of analyst expectations.
- Fiserv Inc. forecast a gloomier year for growth and profits on Wednesday as the payments firm absorbs expenses from a strategic overhaul that is still in early stages.
- McKinsey & Co. agreed to hand control of its $20 billion investment arm to Neuberger Berman, after decades of managing the fortunes of the consulting firm’s current and former partners in sophisticated hedge fund and alternative strategies.
- AstraZeneca Plc expects profit to grow further this year, boosted by sales of its cancer drugs as it works to offset a patent expiry of a blockbuster diabetes medicine.
- BP Plc is halting share buybacks to shore up its balance sheet as pressure mounts on the UK energy giant to deliver on its turnaround
- Barclays Plc said it will return at least £15 billion ($20.5 billion) to shareholders through 2028 as it continues to work through a long-term plan to slash costs and improve profitability.
- Commerzbank AG plans to start a new €540 million ($643 million) share buyback after full-year earnings beat analysts’ estimates.
- Ferrari NV issued new targets for 2026 that reassured investors about the supercar maker’s ability to sustain growth and margins through geopolitical turbulence and a major product transition.
- Better-than-expected sales at top brand Gucci sent Kering SA shares soaring as investors bet new Chief Executive Officer Luca de Meo will revive growth at the struggling luxury group.
- Taiwan Semiconductor Manufacturing Co.’s January sales grew at their fastest clip in months, a sign of sustained global AI spending even as concerns persist about an industry bubble.
- Alibaba Group Holding Ltd. debuted an AI model that can help robots and other devices perform real-world tasks, taking another step toward an eventual goal of leading multiple artificial intelligence spheres.
- The S&P 500 rose 0.3% as of 10:47 a.m. New York time
- The Nasdaq 100 rose 0.3%
- The Dow Jones Industrial Average rose 0.5%
- The Stoxx Europe 600 was little changed
- The MSCI World Index rose 0.4%
- Bloomberg Magnificent 7 Total Return Index rose 0.3%
- Philadelphia Stock Exchange Semiconductor Index fell 0.1%
- IShares Expanded Tech-Software Sector ETF rose 2.2%
- The Russell 2000 Index rose 0.3%
- S&P 500 Equal Weighted Index rose 0.4%
- The Bloomberg Dollar Spot Index was little changed
- The euro fell 0.1% to $1.1901
- The British pound fell 0.2% to $1.3659
- The Japanese yen rose 1% to 154.27 per dollar
- Bitcoin fell 1.7% to $69,197.9
- Ether fell 4.7% to $2,022.36
- The yield on 10-year Treasuries declined six basis points to 4.14%
- Germany’s 10-year yield declined three basis points to 2.81%
- Britain’s 10-year yield declined three basis points to 4.50%
- The yield on 2-year Treasuries declined three basis points to 3.45%
- The yield on 30-year Treasuries declined seven basis points to 4.79%
- West Texas Intermediate crude rose 0.2% to $64.51 a barrel
- Spot gold fell 0.7% to $5,022.37 an ounce
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