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The S&P 500 wavered with modest losses on Tuesday, losing 0.3% as the current geopolitical uncertainty helped restrain risk sentiment. The Dow Jones Industrial Average (-0.4%) and Russell 2000 (-0.3%) posted comparable declines, while the Nasdaq Composite (unch) fared better amid strength in the semiconductor space. 

Iran stepped up its retaliatory threats against the U.S., but the lack of follow-through reassured investors that the situation currently presents little threat to the U.S. economy. Similarly, a pullback in oil prices ($62.68/bbl, -0.58, -0.9%) reflected skepticism that the situation would meaningfully disrupt production. 

Within the stock market, all 11 S&P 500 sectors still finished lower in a lackluster session. The real estate sector (-1.2%) was today's weakest performer, followed by the consumer staples (-0.7%) and financials (-0.7%) sectors. A fade into the close pushed the communication services (-0.04%), information technology (-0.1%), and industrials (-0.1%) sectors into negative territory. 

Semiconductor stocks were among today's strongest performers after Microchip (MCHP 110.69, +6.96, +6.7%) raised its Q3 revenue guidance and Micron (MU 58.27, +4.71, +8.8%) was upgraded to Outperform from Market Perform at Cowen. The Philadelphia Semiconductor Index rose 1.8%. 

Other notable gainers included Apache (APA 32.51, +6.87, +26.8%) after it announced a significant oil discovery off the shore of Suriname and Tesla (TSLA 469.06, +17.52, +3.9%) after it officially opened its Gigafactory 3 in Shanghai. 

U.S. Treasuries finished the tight-ranged session little changed. The 2-yr yield remained at 1.54%, the 10-yr yield increased two basis points to 1.83%. The U.S. Dollar Index increased 0.4% to 97.02. 

Reviewing Tuesday's economic data, which included the ISM Non-Manufacturing Index for December, the Trade Balance Report for November, and the Factory Orders report for November:

• The ISM Non-Manufacturing Index for December registered a 55.0% reading (consensus 54.3%), up from 53.9% in November and the fastest pace since August 2019.
  • The key takeaway from the report is that it is not as encouraging as it appears at first blush. The pace of new orders, new export orders, and employment all slowed; meanwhile, the backlog of orders contracted at a faster pace than November.
• Factory Orders declined 0.7% m/m in November (consensus -0.8%) following a downwardly revised 0.2% increase (from 0.3%) in October. Shipments were up 0.3% following a 0.1% increase in October.
  • The key takeaway from the report is that it reflects the soft conditions for the manufacturing sector. On a year-to-date basis, orders for durable goods were down 1.3% not seasonally adjusted while orders for nondurable goods were down 0.1%.
• The trade deficit narrowed to $43.1 billion in November (consensus -$43.5 billion) from an upwardly revised $46.9 billion (from -$47.2 bln) in October.
  • The key takeaway from the report is that the real trade deficit of $75.25 billion left the fourth quarter average 9% below the third quarter average, which will be a positive input for Q4 GDP growth forecasts.

Looking ahead, investors will receive the ADP Employment Change Report for December, the Consumer Credit Report for November, and the weekly MBA Mortgage Applications Index on Wednesday.

• Nasdaq Composite +1.1% YTD
• S&P 500 +0.2% YTD
• Dow Jones Industrial Average +0.2% YTD
• Russell 2000 -0.6% YTD