Tech Stocks Fall, Defense Soars as US Markets Navigate Data

A Market of Contrasts

US stock markets presented a divided picture in today's trading session, with major indexes moving in different directions. The Dow Jones Industrial Average managed a slight gain of +0.16%, while the S&P 500 edged down by -0.15%. The technology-heavy Nasdaq 100 saw the most significant decline, falling -0.67%, reflecting a clear divergence in sector performance.

This mixed activity highlights a market grappling with competing narratives. On one side, a sell-off in high-flying technology stocks is weighing on sentiment. On the other, a powerful rally in the defense sector is providing substantial support, preventing a broader market downturn.

Tech Sector Faces Profit-Taking

A notable trend today was the weakness across the technology landscape, particularly among chipmakers, data storage firms, and software companies. This downturn appears to be driven by profit-taking after a strong rally to start the year. SanDisk (SNDK) was a significant loser in the S&P 500, dropping more than 5%. Other major players in the data storage and semiconductor space, including Western Digital (WDC), Seagate Technology (STX), Microchip Technology (MCHP), and Broadcom (AVGO), also registered declines of over 1% to 3%.

The software segment mirrored this weakness. Autodesk (ADSK) led the decliners in the Nasdaq 100 with a fall of over 5%. Other enterprise software giants like Datadog (DDOG), Oracle (ORCL), Salesforce (CRM), and Microsoft (MSFT) also experienced losses, contributing to the Nasdaq's underperformance.

Defense Stocks Surge on Spending Plans

In stark contrast to the tech sector, defense stocks experienced a significant rally. The catalyst was a statement from President Trump signaling plans to increase the US military budget to $1.5 trillion by 2027. This prospect of increased government spending sent shares of major defense contractors soaring.

Northrop Grumman (NOC) was the top performer in the S&P 500, jumping more than 10%. Lockheed Martin (LMT) followed closely with a gain of over 8%. Other beneficiaries included L3Harris Technologies (LHX), Huntington Ingalls Industries (HII), General Dynamics (GD), and RTX Corp (RTX), all of which posted gains ranging from 5% to over 7%. This surge effectively counterbalanced the losses seen in the technology sector.

Rising Bond Yields and Economic Data

Adding another layer of complexity to the market environment are rising bond yields. The 10-year T-note yield climbed by 4 basis points to 4.18%. This increase is a negative factor for stocks, as it makes bonds a more attractive investment alternative and increases borrowing costs for companies.

The rise in yields was fueled by strong US labor market data, which suggests economic resilience that could influence Federal Reserve policy. Announced layoffs, as measured by the Challenger job cuts report, fell to a 17-month low in December. Additionally, weekly initial unemployment claims rose less than anticipated, coming in at 208,000 against expectations of 212,000. These figures point to a robust labor market, a factor considered hawkish by the Fed.

However, other economic reports provided some support for stocks. Third-quarter nonfarm productivity rose by a strong 4.9%, and unit labor costs fell by 1.9%, more than expected. Furthermore, the US trade deficit for October shrank to its smallest level in 16 years, an encouraging sign for the economy.

Key Individual Stock Movers

Beyond the broad sector trends, several companies made significant moves based on company-specific news.

Global Market Perspective

Overseas markets were also lower, indicating a broader risk-off sentiment globally. The Euro Stoxx 50 fell by -0.22%, China’s Shanghai Composite closed down -0.07%, and Japan’s Nikkei 225 experienced a more substantial drop of -1.63%. European government bond yields also moved higher, with the 10-year German bund yield increasing by 6.9 basis points.

Looking Ahead

The market's attention is now turning to upcoming economic data, particularly the December nonfarm payrolls report due on Friday. Economists expect an increase of 70,000 jobs. Other key reports include housing starts and the University of Michigan's consumer sentiment index. Currently, the market is pricing in a very low 9% chance of a 25-basis-point rate cut at the next FOMC meeting.

In conclusion, today's session was characterized by a rotation out of technology and into defense, driven by distinct catalysts. While strong labor data pushed bond yields higher and pressured equities, other positive economic indicators provided a floor for the market. Investors remain watchful as they await further data to gauge the health of the economy and the future direction of monetary policy.