While stocks weathered some volatility late last week to chart a higher finish, the market faced a sharp retreat today, with the S&P 500 (-1.0%), Nasdaq Composite (-1.1%), and DJIA (-1.7%) finishing firmly lower across the board. The S&P 500 closed below its 50-day moving average (6,895.83) and moved back into negative territory for the year. 

The Russell 2000 (-1.6%) and S&P Mid Cap 400 (-1.8%) closed with even wider losses, underscoring a broad "risk off" tone in today's trade. 

Morning headlines revolved around tariff uncertainty after President Trump raised the Section 122 global tariff rate to 15% from 10% and warned this morning that he would impose additional tariffs on countries that attempt to revisit recent trade agreements with the U.S. The threat was made just hours after it was reported that the EU is pausing the approval of the trade deal, pending further review. Late this afternoon, Politico reported that it is unlikely that Congress will have the votes to extend the Section 122 tariffs past 150 days, adding to the uncertainty around the situation.

Unsurprisingly, many stocks in the consumer discretionary sector (-2.2%) struggled, especially those that rely on overseas manufacturing and large import volumes, such as Williams-Sonoma (WSM 201.89, -12.97, -6.04%), lululemon athletica (LULU 178.11, -9.19, -4.91%), and NIKE (NKE 63.08, -2.32, -3.55%). 

Elsewhere in the sector, casino and travel-related names such as Expedia Group (EXPE 188.51, -14.97, -7.36%) and MGM Resorts (MGM 34.26, -2.54, -6.89%) charted even wider losses. 

Tesla (TSLA 399.83, -11.99, -2.91%) and Amazon (AMZN 205.27, -4.84, -2.30%) finished lower amid a tough day for mega-cap tech, which saw the Vanguard Mega Cap Growth ETF finish 1.3% lower. 

The market is no stranger to weakness across mega-cap and tech names this year, particularly in the software space. 

Microsoft (MSFT 384.60, -12.63, -3.18%) was a Magnificent Seven laggard, providing weak leadership for an already beleaguered software space. The iShares GS Software ETF finished 4.7% lower as renewed fears of AI disruption saw software names such as Datadog (DDOG 102.62, -13.04, -11.28%) and CrowdStrike (CRWD 350.33, -38.27, -9.85%) plot some of the widest retreats in both the information technology sector (-1.1%) and the broader S&P 500. 

IBM (IBM 223.38, -33.78, -13.13%) faced the widest retreat, which was attributed to news that Claude can automate COBOL modernization. 

Software weakness added to pressure across asset manager names, which were already under pressure following reports last week that Blue Owl Capital (OWL 10.45, -0.36, -3.35%) is restricting redemptions. 

For PE firms with meaningful general partner stakes in portfolio companies tied to traditional enterprise software, uncertainty around future earnings and exit prospects weighed on sentiment, sending stocks such as KKR (KKR 92.19, -8.99, -8.89%) and Ares Management (ARES 114.57, -8.59, -6.97%) firmly lower. 

Meanwhile, fears that AI disruption could slow high-income spending sent ripples across stocks in the payment space lower, such as American Express (AXP 321.24, -24.94, -7.20%) and Capital One (COF 190.00, -18.42, -8.84%).

The industrials sector (-1.4%) also saw a continuation of weakness attributed to AI-disruption fears, including couriers such as C.H. Robinson (CHRW 177.20, -12.86, -6.77%) and data services such as Equifax (EFX 188.43, -9.03, -4.57%).

Defensive names garnered some rotational interest today amid the pronounced weakness in the broader market, sending the consumer staples (+1.5%), healthcare (+1.2%), and utilities (+0.7%) sectors to the top of today's leaderboard. Walmart (WMT 125.81, +2.82, +2.29%) rebounded from a modest post-earnings slide, while Eli Lilly (LLY 1058.56, +49.04, +4.86%) traded sharply higher after its competitor Novo Nordisk A/S (NVO 39.63, -7.79, -16.43%) reported weaker results for its newest weight-loss drug. 

Outside of the stock market, Bitcoin retreated under the $65,000 mark, adding to a sense of volatility across risk assets today. 

All told, it was a tough session for stocks, with pronounced software and mega-cap weakness combining with weak participation in the broader market. Today's renewed selling pressure across pockets of the market that have seen volatility amid fears of AI disruption could signal that last week's higher finish was more of a technical rebound and not a change in sentiment. Without material gains from semiconductors or other AI buildout stocks to offset the weakness in disrupted pockets of the market, the major averages will continue to struggle to break out from their current levels.

U.S. Treasuries began the week on a firmly higher note, sending the 5-yr yield toward its low from 2025 (3.530%) amid an uptick in trade tensions and ongoing weakness in asset managers. The 2-year note yield settled down four basis points to 3.44%, the 5-year note yield settled down seven basis points to 3.58%, and the 10-year note yield settled down six basis points to 4.03%. 

• S&P Mid Cap 400: +7.2% YTD
• Russell 2000: +5.6% YTD
• DJIA: +1.5% YTD
• S&P 500: -0.1% YTD
• Nasdaq Composite: -2.6% YTD

Reviewing today's data:

• Factory orders declined 0.7% month-over-month in December (Briefing.com consensus: 0.9%) following a 2.7% increase in November. Excluding transportation, factory orders increased 0.4% after increasing 0.1% in November. Shipments of manufactured goods rose 0.5% after sliding 0.2% in November.
  
  • The key takeaway from the report is that the weakness was concentrated in the transportation industry; otherwise, it was a decent month of order activity for durable goods.