Modest Gains Paint Mixed Holiday Picture as Stock Markets Navigate Year-End Sentiment

US equity markets wrapped up the shortened pre-Christmas trading session with mildly positive momentum, though the pace of advance remained restrained. The S&P 500 climbed 0.32% to touch fresh record territory, while the Dow Jones Industrial Average gained 0.60% and the Nasdaq 100 edged up 0.27%. Futures markets reflected similar caution, with March E-mini S&P contracts and March E-mini Nasdaq contracts both posting modest 0.27% and 0.20% gains respectively.

What’s Driving the Cautious Rally?

The mildly upbeat tone emerged from a confluence of factors. A 2.9 basis point retreat in 10-year Treasury yields provided support, though the broader picture remains nuanced. Optimism surrounding Q3 GDP growth—which came in at a robust 4.3% annualized, exceeding forecasts of 3.3%—continues to underpin equity positioning. Yet beneath the surface, mixed signals complicate the narrative.

Consumer sentiment deteriorated more sharply than anticipated. The Conference Board’s December confidence index contracted 3.8 points to 89.1, significantly below the 91.0 projection and prior November’s revised 92.9 reading. This weakness signals growing caution among American households despite headline GDP strength.

Labor market data offered a split verdict. Initial jobless claims fell 10,000 to 214,000 in the week ended December 20, suggesting underlying strength that exceeded the 224,000 consensus. However, continuing claims jumped 38,000 to 1.923 million, pointing to potential softness in job retention that contradicts the headline improvement.

The China Factor and Policy Divergence

China’s central bank injected cautiousness into global markets, signaling it won’t deploy aggressive rate cuts despite property sector stress and weakening domestic demand. The PBOC emphasized long-term stability over emergency measures, a posture that contrasts with market expectations for more accommodative policies.

Seasonal Tailwinds and Rate Expectations

Historically, December’s final two weeks have supported equity performance. Since 1928, the S&P 500 has risen 75% of the time during this period, averaging 1.3% gains. Market pricing suggests only a 16% probability of a 25 basis point rate cut at the January 27-28 FOMC meeting.

Internationally, performance remained scattered. China’s Shanghai Composite advanced 0.53% for its sixth consecutive session, while Japan’s Nikkei retreated 0.14% and Europe’s Euro Stoxx 50 slipped 0.05%.

Individual Movers Command Attention

The Magnificent Seven stocks delivered mildly mixed results. Apple gained 0.5%, but Nvidia declined 0.5%. Intel dropped 0.8% following reports that Nvidia suspended tests of the company’s 18A manufacturing process, raising questions about technological readiness despite Nvidia’s $5 billion investment commitment from September.

Semiconductor names diverged sharply. Micron Technology surged beyond 3%, while Marvell Technology and ON Semiconductor both fell more than 1%. Bitcoin declined roughly 0.3%, weighing on crypto-exposed equities. Coinbase Global fell 1.1%, though Riot Platforms gained 1.8%.

Retail drew attention when Nike rallied 4.6% following disclosure that Apple CEO Tim Cook purchased $2.95 million in Nike shares on December 22. Meanwhile, AST SpaceMobile plummeted 9% despite successfully launching its most advanced satellite yet—an effort to establish satellite-based internet infrastructure competitive with SpaceX’s Starlink.

Vaccine developer Dynavax soared 38% on news that Sanofi agreed to acquire the company for approximately $2.2 billion, providing one of the day’s most dramatic individual stock moves.

Bond Markets Display Restraint

Ten-year Treasury yields retreated 2.9 basis points to 3.134%, supported by a 0.4 basis point decline in breakeven inflation expectations to 2.236%. The Treasury’s $44 billion offering of 7-year notes created modest supply headwinds. German bund yields remained flat at 2.862%, while UK gilt yields edged down 0.2 basis points to 4.507%. The ECB is priced to have only a 3% chance of delivering a 25 basis point rate increase at its February 5 meeting.