Stocks Pause, Bonds Rally as Soft Retail Sales Reinforce Fed Cut Expectations

US equities paused after a strong run as weaker-than-expected December retail sales reinforced expectations for Federal Reserve rate cuts later this year. Treasury yields fell to their lowest levels in about a month, but equity gains were uneven, with tech weighing on the broader market even as the Dow and equal-weighted S&P 500 notched fresh highs. Markets are now firmly focused on the upcoming jobs report as the next catalyst.

Key Headlines & Market Movers:

• Consumer data softens the growth outlook: December retail sales unexpectedly stalled, suggesting the US consumer lost momentum heading into year-end. Core measures tied to GDP also slipped, prompting economists to trim near-term growth estimates. While not recessionary on its own, the data adds to evidence that consumption growth may slow meaningfully in early 2026, especially with weather disruptions weighing on January activity.

Rates rally as Fed cut expectations firm: Treasuries rallied sharply, with 10-year yields falling to around 4.14% as investors modestly increased the odds of three rate cuts this year. Markets continue to fully price two cuts, with the first expected around midyear. Fed officials struck a cautious tone, emphasizing the need for clearer labor market weakness before easing further, reinforcing the importance of upcoming payroll and inflation data.

• Equity leadership rotates: The S&P 500 slipped modestly, constrained by weakness in large-cap tech and semiconductors, even as roughly 300 constituents advanced. In contrast, the Dow and the equal-weighted S&P 500 reached new highs, highlighting ongoing rotation toward cyclicals, financials, and smaller-cap exposure as market breadth improves.

AI volatility continues, but long-term conviction holds: Recent pullbacks in software and AI-related stocks drew mixed reactions. Some strategists see last week’s selloff as overdone, arguing fundamentals and long-term AI demand remain intact despite near-term valuation and capex concerns. Others emphasize discipline, noting that leadership broadening beyond last year’s AI winners is a healthier backdrop for a durable bull market.

S&P 500 Sector Performance

Looking Ahead

Attention now turns squarely to the January jobs report and upcoming inflation data. Markets are searching for confirmation that growth is cooling just enough to justify Fed easing without tipping into a sharper slowdown. A weaker payroll print could tilt sentiment risk-off, while a solid but moderating labor market would likely reinforce the current “soft-landing” narrative. For portfolios, the environment continues to favor balance, maintaining exposure to technology and AI themes while leaning into cyclicals and areas benefiting from improving breadth.

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Duncan Williams Asset Management is an SEC registered investment adviser. SEC registration does not constitute an endorsement of Duncan Williams Asset Management by the SEC nor does it indicate that Duncan Williams Asset Management has attained a particular level of skill or ability.

This material prepared by Duncan Williams Asset Management is for informational purposes only and is accurate as of the date it was prepared.  It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product. Past performance is not indicative of future results. Investing involves risks, including the risk of loss of principal. Before making any investment decision, investors should consult with their financial advisor, consider their individual financial circumstances, and carefully review all relevant information and risk factors. Duncan Williams Asset Management assumes no responsibility for errors or omissions, nor does it accept liability for any loss arising from reliance on this information.

Advisory services are only offered to clients or prospective clients where Duncan Williams Asset Management and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Duncan Williams Asset Management unless a client service agreement is in place.

This material is not intended to serve as personalized tax, legal and/or investment advice since the availability and effectiveness of any strategy is dependent upon your individual facts and circumstances. Duncan Williams Asset Management is not a legal or accounting firm. Please consult with your legal or tax professional regarding your specific tax situation when determining if any of the mentioned strategies are right for you.

Disclaimer

Duncan Williams Asset Management is an SEC registered investment adviser. SEC registration does not constitute an endorsement of Duncan Williams Asset Management by the SEC nor does it indicate that Duncan Williams Asset Management has attained a particular level of skill or ability.

This material prepared by Duncan Williams Asset Management is for informational purposes only and is accurate as of the date it was prepared.  It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product. Past performance is not indicative of future results. Investing involves risks, including the risk of loss of principal. Before making any investment decision, investors should consult with their financial advisor, consider their individual financial circumstances, and carefully review all relevant information and risk factors. Duncan Williams Asset Management assumes no responsibility for errors or omissions, nor does it accept liability for any loss arising from reliance on this information.

Advisory services are only offered to clients or prospective clients where Duncan Williams Asset Management and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Duncan Williams Asset Management unless a client service agreement is in place.

This material is not intended to serve as personalized tax, legal and/or investment advice since the availability and effectiveness of any strategy is dependent upon your individual facts and circumstances. Duncan Williams Asset Management is not a legal or accounting firm. Please consult with your legal or tax professional regarding your specific tax situation when determining if any of the mentioned strategies are right for you.

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