Tuesday's session ended with modest losses for the major averages, but the relatively quiet finish belied another weak showing beneath the surface. The S&P 500 (-0.2%), Nasdaq Composite (-0.1%), and DJIA (-0.3%) recovered from their midday lows, aided by semiconductor strength and a late-afternoon lift following remarks from New York Fed President John Williams, while participation remained weak across the broader market.

Stocks initially hovered near their flat lines before selling became more pronounced late in the morning. The retreat came despite a sizable decline in crude oil, which had provided some early encouragement following a report indicating that Middle Eastern oil exports have recovered to around their highest levels since the Iran war began, suggesting Iran could be losing some leverage over the Strait of Hormuz. WTI crude ultimately settled $3.18 lower (-3.4%) at $89.26 per barrel.

The decline removed some of the pressure that elevated energy prices have recently placed on the market, but stocks derived relatively little benefit as elevated Treasury yields remained a notable counterweight.

The major averages received a late-afternoon boost following remarks from New York Fed President John Williams, a voting FOMC member, who said there is "no need for urgency" following the Fed's September policy action and that policymakers have time to gather additional information. The comments prompted markets to dial back expectations for another rate hike at the October FOMC meeting, with the CME FedWatch Tool showing the implied probability of a hike falling to 49.3% from 70.9% yesterday.

Semiconductors provided one of the session's clearest sources of support. The PHLX Semiconductor Index rose 1.3%, bucking a 0.3% decline in the information technology sector and helping limit the Nasdaq's loss. Semiconductor-linked names such as Bloom Energy (BE 291.25, +28.38, +10.80%) also contributed to relative strength in the industrials sector (+0.2%), which was one of only four S&P 500 sectors to finish higher. A White House meeting attended by a number of prominent AI industry executives drew attention during the afternoon, with discussion touching on industry self-regulation and cooperation with local communities on data-center development, although the event did not produce a meaningful reaction in the market.

The utilities sector (+1.1%) stood comfortably atop the sector standings, rebounding from a weaker showing yesterday. The communication services sector (+0.4%) also outperformed, supported by a rebound in Meta Platforms (META 738.96, +23.34, +3.26%) after the stock gave back some of last week's double-digit advance during Monday's session.

The consumer discretionary sector (+0.1%) rounded out the positive side of the ledger, benefiting from several pronounced stock-specific gainers. Carvana (CVNA 63.63, +3.16, +5.23%) rallied alongside CarMax (KMX 59.26, +2.72, +4.80%) following the latter's better-than-expected Q2 report, while cruise-line stocks moved sharply higher. Carnival (CCL 25.14, +3.00, +13.53%) was a standout after reporting better-than-expected earnings and record Q3 revenue, with the broader cruise group also benefiting from the sharp decline in oil prices.

Conversely, the energy sector (-0.9%) finished at the bottom of the standings as crude oil retreated. The consumer staples sector (-0.5%) was another notable underperformer, with Walmart (WMT 106.83, -1.90, -1.75%) weighing on the group and the price-weighted DJIA after Target (TGT 156.45, -1.98, -1.25%) announced permanent price reductions on nearly 2,000 apparel, footwear, accessories, and home products ahead of the holiday season, raising the prospect of increased pricing pressure across general merchandise.

Fair Isaac (FICO 616.72, -224.17, -26.66%) was another major laggard and the worst-performing S&P 500 component. The stock plunged after FHFA Director Bill Pulte said Fannie Mae (FNMA 4.13, -0.27, -6.14%) and Freddie Mac (FMCC 3.81, -0.19, -4.81%) will move to a single pricing grid incorporating VantageScore alongside the existing FICO Classic model, increasing competition in a market where FICO has long held a dominant position.

The weakness extended beyond the large-cap indices, with the Russell 2000 falling 0.4% and the S&P Mid Cap 400 declining 0.1%. Only four S&P 500 sectors finished higher, reinforcing the disconnect between the relatively modest losses in the major averages and the weaker performance across much of the market. Strength in semiconductors and a handful of other pockets helped contain the index-level declines, but the lack of broader participation remains a concern alongside elevated Treasury yields.

Attention now turns to a busy slate of economic data Wednesday morning, headlined by the August Personal Income and Spending report. The headline PCE Price Index is expected to increase 0.4% month-over-month, while the core PCE Price Index, which excludes food and energy, is expected to rise 0.3%. With Treasury yields remaining elevated and market participation continuing to lag, the inflation data will provide another important test for a market that has become increasingly sensitive to the interest-rate outlook.

U.S. Treasuries finished mixed after yields climbed sharply despite falling oil prices. The 10-year yield reached 5.29%, while the 30-year yield hit its highest level since 2002 at 5.62%, before yields retreated in the afternoon after New York Fed President Williams said there was no need for urgency following the Fed's September rate hike. The 2-year note yield settled down four basis points to 4.89%, and the 10-year note yield settled up one basis point to 5.26%. 

• Nasdaq Composite: +15.3% YTD
• Russell 2000:+13.3% YTD
• S&P 500: +12.1% YTD
• S&P Mid Cap 400: +9.5% YTD
• DJIA: +6.8% YTD

Reviewing today's data:

• Jul FHFA Housing Price Index 0.3% (Prior 0.0%)
• Jul S&P Case-Shiller Home Price Index 2.5% (Prior 2.2% revised from 2.1%)
• The Conference Board's Consumer Confidence Index decreased to 81.9 in September (Briefing.com consensus 90.0) from a downwardly revised 88.6 (from 89.4) in August. In the same period a year ago, the index stood at 95.6.
  • The key takeaway from the report is that consumer confidence weakened for both present conditions and the six-month outlook, with elevated prices for goods and services factoring into that assessment.
• Aug JOLTs - Job Openings 7.079M (Briefing.com consensus 7.150M; Prior 7.335M revised from 7.271M)