Markets to open cautious as AI unwind meets defensive bid

Introduction#

U.S. equities head into Tuesday, December 16, 2025 with a cautious bid after a mixed close and a busier-than-usual overnight tape. According to Monexa AI, yesterday’s session finished with the S&P 500 (^SPX) marginally lower, the Dow Jones Industrial Average (^DJI) slightly down, and the Nasdaq Composite (^IXIC) underperforming as investors continued to reduce exposure to richly valued A.I. and A.I.-infrastructure names. At the same time, defensive sectors and select cyclicals outperformed, setting up a rotational battle that is likely to define this morning’s price discovery. The macro backdrop remains fluid: short-end yields eased into the close and again overnight as traders weighed the Federal Reserve’s recent policy shift and the approaching labor-market updates, while Europe traded risk-off on energy and defense and Asia offered little relief.

A handful of overnight headlines could steer the open. European defense shares declined on signs of progress in Ukraine peace talks, which pulled at valuations for defense primes and related suppliers as investors discounted headline risk in the near term, according to Reuters. Treasury yields also nudged lower as markets braced for key labor data and retail updates, with cross-asset tone turning more tentative into year-end, per Reuters. Separately, the industry’s push toward round-the-clock trading remained in focus after exchange and bank commentary signaled a 2026 timeline for expanded hours and new operational demands, as reported by Reuters. Bloomberg’s morning brief flagged choppy risk conditions persisting into the holiday period, a theme consistent with the day’s futures tone and recent sector dispersion (Bloomberg.

Market Overview#

Yesterday’s Close Recap#

According to Monexa AI, the U.S. benchmarks ended Monday mixed, with mega-cap Technology soft but not collapsing, and stock-specific drawdowns in software and AI-adjacent hardware skewing breadth. The S&P 500 remains within sight of its year high as a push-pull between defensive leadership and selective cyclical strength plays out at the index level. The Nasdaq Composite suffered deeper losses as investors continued to trim exposures to higher-beta A.I. infrastructure and software names following recent earnings-related disappointments from key suppliers. The CBOE Russell 2000 Volatility Index (^RVX) and the CBOE Volatility Index (^VIX) both rose, consistent with a market leaning more cautiously into upcoming data and headline risk.

Monexa AI data show the S&P 500 (^SPX) traded between 6,801.49 and 6,861.59 and closed at 6,816.51, with volume of about 3.32 billion versus a 5.46 billion average. The Dow (^DJI) finished at 48,416.56, down 0.09%, while the Nasdaq (^IXIC) closed at 23,057.41, off 0.59%. The NYSE Composite (^NYA) eked out a gain, closing at 22,030.02, while volatility proxies ^RVX and ^VIX both rose into the close, indicating a mild uptick in hedging demand into the next data prints.

The sector pattern was telling. Technology lagged on software and A.I.-infrastructure weakness—dragged notably by NOW at -11.60% and AVGO at -5.58%—while megacaps AAPL (-1.47%) and MSFT (-0.79%) were more resilient and NVDA rose 0.63%. Healthcare and Utilities provided ballast as investors favored defensive cash flows; Consumer Cyclical outperformed thanks to travel and leisure strength, with TSLA (+3.52%) and cruise/booking names posting outsized gains.

Overnight Developments#

European risk appetite deteriorated as defense shares slid amid reports of progress in Ukraine peace talks and security guarantees discussions, pressuring the region’s defense complex and weighing on broader benchmarks, per Reuters. London’s FTSE 100 also weakened as oil and defense names fell and U.K. unemployment ticked up, reinforcing expectations for a Bank of England cut later this week, according to multiple press accounts. U.S. Treasury yields drifted lower ahead of labor and spending data, while risk commentary from Bloomberg highlighted expectations for choppy trading into the holiday period.

There’s also a structural market story developing. Wall Street is preparing for round-the-clock stock trading, albeit reluctantly, as exchanges seek to expand hours in 2026 and large banks and brokers assess liquidity and operational risks in off-hours sessions, according to Reuters. This theme is relevant to brokers like SCHW and HOOD, exchange operators, and large banks such as JPM that must calibrate market-making, clearing, and risk systems for a longer trading day.

Macro Analysis#

Economic Indicators to Watch#

The near-term macro focus is squarely on the labor market and retail momentum. Several outlets flagged a U.S. jobs report for release today, though Reuters has also noted that November employment updates could be delayed due to government shutdown impacts, with a softer payroll print expected when the data arrive later this month (Reuters. This discrepancy matters for positioning: if jobs data are indeed delayed, the market will lean more heavily on proxies such as jobless claims, private payroll estimates, and high-frequency spending indicators, while parsing retail sales for confirmation that consumption is decelerating but not collapsing.

Policy remains a key swing factor. The Federal Reserve’s recent 25 bps cut—best described by the financial press as a dovish-leaning adjustment with a cautious forward path—has supported rate-sensitive assets at the margin and weakened the dollar in recent sessions, according to Reuters and the Wall Street Journal. Markets continue to price a measured easing path into 2026, and the shape of the curve will influence leadership: lower short-term rates tend to aid Real Estate and selected Financials while pressuring net interest income at some lenders. The observed rotation in yesterday’s tape—defensives firm, cyclicals selective, A.I.-centric tech heavy—is consistent with an economy digesting slower growth alongside easier policy expectations.

The practical implication for the open is straightforward. If labor or retail data come in softer than expected, the bias should reinforce defensive leadership—Healthcare, Utilities, and high-quality Staples—while dampening momentum in cyclicals tied to discretionary spending. Conversely, a clean read across consumption and employment would help the travel/leisure complex and rate-sensitive Consumer Discretionary subsectors already showing relative strength.

Global/Geopolitical Factors#

Geopolitical currents are exerting an unusual pull on sector dispersion. Progress in Ukraine peace talks weighed on European defense shares overnight and could color sentiment for U.S. primes, even as order books and multiyear procurement remain supportive. Reuters highlighted declines in European defense on de-escalation headlines, which, if sustained, can compress sector multiples even when backlogs remain robust (Reuters. Energy also traded defensively as oil-sensitive equities lost ground, echoing Monday’s broad underperformance in U.S. E&Ps and integrated majors per Monexa AI data. Meanwhile, trade-policy dynamics resurfaced with reports that the U.S. halted negotiations on a U.K. “technology prosperity deal,” according to the Financial Times, a headline that may incrementally affect transatlantic tech policy expectations.

Finally, market structure is becoming a macro variable. The shift toward near-24/7 trading will ripple through liquidity, price discovery, and hedging conventions. Reuters reporting indicates exchanges and clearinghouses are preparing for system upgrades and practices suitable for continuous sessions, while large banks and brokers debate the cost/benefit of staffing, market making, and client service in expanded hours. This is not a today catalyst, but it shapes 2026 expectations for brokers, exchanges, and liquidity-sensitive strategies.

Sector Analysis#

Sector Performance Table#

According to Monexa AI, sector performance at yesterday’s close underscored a defensive tilt with selective risk-on pockets. Technology was the clear laggard, while Healthcare and Utilities led. Consumer Cyclical outperformed, primarily via travel, lodging, and select auto. Financials were mixed with crypto-adjacent names weak and large banks stable to higher.

Monexa AI’s heatmap shows Technology down on idiosyncratic shock absorbers: NOW fell 11.60% as investors punished software risk, while AVGO dropped 5.58% as A.I.-driven infrastructure margins and guidance remain under scrutiny in the wake of last week’s results; the name remains a sector bellwether and a meaningful driver of cap-weighted returns. Mega-cap tech damage was more contained with AAPL at -1.47% and MSFT at -0.79%, and NVDA up 0.63%, suggesting index risk is concentrated in a handful of software and chip-infrastructure names rather than uniformly across megacap tech. Communication Services traded mixed-to-flat as CMCSA gained 3.64% and META added 0.51%, set against modest declines in GOOG (-0.39%) and NFLX (-1.50%).

Financials displayed stark dispersion, with crypto-exposed COIN (-6.35%) and HOOD (-3.56%) under pressure while quality bellwether BRK-B rose 1.39% and JPM added 0.47%. Brokers like SCHW slipped 1.42% amid flow and rate sensitivity. Consumer Cyclical outperformed on travel and autos: TSLA jumped 3.52%, CCL and NCLH rallied 3.55% and 3.84%, and BKNG rose 2.96%, offset by weakness in AMZN (-1.62%) and EBAY (-3.28%).

Healthcare provided core defense as BMY (+3.60%), LLY (+3.43%), ISRG (+3.18%), ABT (+2.49%), and PFE (+2.26%) advanced, though DXCM fell 1.86%. Industrials were mixed with DAL (+2.09%), HON (+1.97%), and RTX (+1.93%) higher, while MMM declined 1.93% and building products name BLDR lost 3.56%. Consumer Defensive bifurcated as HSY (+3.45%), PM (+2.99%), and PG (+1.61%) climbed while COST (-2.70%) and EL (-2.95%) fell.

Energy notably lagged with DVN (-3.57%), APA (-2.42%), OXY (-2.18%), and XOM (-0.89%) lower, while solar held up with FSLR gaining 0.45%. Utilities outperformed broadly: PEG rose 2.24%, SO 1.97%, CEG 1.47%, while NEE was roughly flat and VST slipped 1.05%. Real Estate was mixed-to-positive with WELL (+2.00%), INVH (+2.09%), and EQIX (+1.51%) offsetting a 6.60% drop in CSGP. Basic Materials fell modestly, driven by MOS (-5.15%), LYB (-2.35%), and DOW (-2.00%), with NEM (+1.56%) and MLM (+0.92%) relative bright spots.

Company-Specific Insights#

Earnings and Key Movers#

The most acute single-name pressure in Technology came from NOW (-11.60%) as software weakness compounded the broader A.I.-unwind narrative. The pullback in AVGO (-5.58%) remained a focal point after last week’s print and guidance, as investors debated the durability of A.I.-infrastructure margins and customer in-sourcing risk, per overnight coverage across financial media. Monexa AI’s heatmap shows that despite these drags, NVDA finished the day up 0.63%, highlighting that weakness is not monolithic across A.I. leaders.

The sell-off also hit crypto-adjacent financials, with COIN down 6.35% and HOOD off 3.56%, while quality financials such as BRK-B (+1.39%) and JPM (+0.47%) stabilized the group. In Consumer Cyclical, travel-leisure continued to outperform with CCL (+3.55%), NCLH (+3.84%), and BKNG (+2.96%), while TSLA gained 3.52%.

There were several notable, catalyst-driven moves. ZG fell 7.89% to 66.67 after reports that GOOG is testing search formats featuring real estate listings, raising concerns about Zillow’s core lead-gen economics; Monexa AI captured the pressure despite an analyst upgrade elsewhere. TXN slid 0.81% following a downgrade to Sell from Goldman Sachs, which cited capacity expansion and capital allocation as margin headwinds—adding idiosyncratic risk to an analog subsector otherwise poised for cyclical recovery later in 2026 per recent sell-side commentary. In autos, UBS raised its target on GM to $97 and reiterated its Buy stance, pointing to North American margin normalization and robust cash return potential; shares closed up 1.34% at 81.98. Lodging leader HLT added 2.06% after a Goldman upgrade to Buy on international demand and capital returns. Discount retailer DG set a new 52-week high after a JPMorgan upgrade to Overweight with a $166 target, reflecting structural comp and margin drivers; shares eased 0.17% on the day into strength, suggesting some profit-taking.

On the downside in Biotech, ARGX fell 3.07% after discontinuing its Phase 3 UplighTED studies in thyroid eye disease for futility, per company statements tracked by Monexa AI. Separately, IRBT plunged 72.91% after filing for Chapter 11 bankruptcy protection, with current shareholders expected to be wiped out under the proposed sale plan; the stock’s volatility is emblematic of end-of-cycle “zombie squeeze” behavior highlighted in recent commentary.

Energy bellwether XOM slipped 0.89%, consistent with broad E&P and integrated weakness. In Consumer Defensive, COST fell 2.70% against strength in PG (+1.61%), PM (+2.99%), and HSY (+3.45%), a pattern suggesting selective consumer defensiveness and positioning preference for yield and pricing power.

Extended Analysis#

A few crosscurrents are likely to frame today’s open. First, the A.I. de-risking is not a wholesale liquidation but a rediscovery of idiosyncratic risk in software and chip-infrastructure after a 2025 rally that pulled forward a lot of expectations. Reuters coverage last week underscored how Broadcom’s outlook and Oracle’s cloud cadence reignited bubble concerns around A.I. infrastructure margins and the pace of hyperscale spending, and Monday’s tape functioned as a continuation of that debate. The divergent closes of NVDA (+0.63%) and AVGO (-5.58%), alongside a double-digit drawdown in NOW, narrow the issue: leadership is rotating within Technology itself. This demands precision rather than abandonment—allocators should differentiate between names with near-term margin compression risk tied to capacity build-outs and those with clearer software monetization or durable supply/demand asymmetries.

Second, rate dynamics are slowly reasserting their influence. The Fed’s cut with a cautious forward path reduced short-end yields and supported rate-sensitive equities in recent sessions, per Reuters. The sector tape corroborates that: Utilities and Real Estate gained, and high-quality Financials were resilient while brokers with crypto exposure and rate/flow sensitivity underperformed. If Treasury yields continue to ease as suggested by Reuters, expect further support for Utilities, high-quality REITs, and select consumer defensives with dividend appeal, especially into year-end windows when managers emphasize capital preservation.

Third, geopolitics may suppress multiples in defense even as backlogs remain firm. Reuters reported European defense shares falling on peace-talk progress, and while U.S. primes like RTX and LMT did not collapse Monday—[RTX] rose 1.93%—the risk is a short-term valuation headwind that traders will fade or hedge until clarity emerges. This could also bleed into Energy through the commodity channel if de-escalation lowers perceived supply-risk premia, compounding yesterday’s weakness across DVN, APA, OXY, and XOM.

Fourth, the march toward 24/7 trading is a 2026 story with 2025 implications. Reuters reporting on Nasdaq’s extended-hours plans underscores a new liquidity regime that will require brokers like SCHW and HOOD to invest in risk, data, and clearing infrastructure, while large banks such as JPM recalibrate market-making in thin overnight windows. For investors, the practical angle is execution: liquidity will fragment by time-of-day, and spreads could widen in off-hours sessions, amplifying gap risk around global headlines. That argues for disciplined use of limit orders, hedges that trade around the clock, and an appreciation for the cost of carry in strategies sensitive to overnight volatility.

Finally, there is a data-timing caveat. Some outlets signaled a jobs report due today, yet Reuters reported potential delays tied to the shutdown, with expectations for a softer November payroll print when released. Given this conflict, traders should confirm the Bureau of Labor Statistics calendar before the bell. If employment data slip, retail sales and high-frequency labor proxies will take on outsized importance for the morning tone. Either way, the market’s reaction function looks biased toward rewarding visible earnings durability and punishing capacity-driven margin risk.

Actionably, the setup argues for a barbell: maintain core exposure to high-quality defensives (Healthcare majors like LLY, BMY, ABT; Utilities such as PEG and SO while selectively adding to cyclical travel/leisure where demand visibility is strongest (BKNG, hotel operator HLT, and cruise lines CCL/NCLH. In Technology, favor A.I. leaders with clearer monetization and less near-term margin compression. Exercise patience in A.I.-infrastructure names under margin scrutiny and in stocks where recent downgrades highlight company-specific execution or capital allocation risk, such as TXN.

Conclusion#

Morning Recap and Outlook#

The market enters Tuesday’s session with a defensive lean and notable dispersion. According to Monexa AI, the S&P 500 closed at 6,816.51 (-0.16%), the Dow at 48,416.56 (-0.09%), and the Nasdaq at 23,057.41 (-0.59%). The VIX rose to 17.00 (+3.03%), and sector performance skewed against Technology, Financial Services, and Energy, with Healthcare and Utilities leading and Consumer Cyclical buoyed by travel/leisure strength. Overnight, European equities were pressured by defense and energy weakness as peace-talk headlines weighed, and U.S. fixed income found a bid while investors awaited clarity on the labor and retail data calendar. The industry’s shift toward near-24/7 trading kept structural risks and opportunities on the radar.

For the open, anchor on three catalysts. First, confirm the status and timing of the jobs data; a softer labor print—or a delay—favors defensives and Utilities, while a clean read would likely aid travel/leisure and selected Discretionary. Second, watch follow-through in A.I.-infrastructure and software—particularly AVGO, NOW, and TXN—to assess whether yesterday’s idiosyncratic declines stabilize or extend. Third, monitor Energy and defense sentiment for spillovers from geopolitical headlines and oil pricing.

The playbook is to stay selective, size positions conservatively, and respect the tape’s message: idiosyncratic risk is high, breadth is mixed, and the market is rewarding earnings visibility and balance-sheet quality while imposing a higher penalty on capacity-driven margin risk. As 2025 winds down, that discipline should help investors navigate a market still near highs but increasingly intolerant of execution missteps.

Key Takeaways#

• According to Monexa AI, U.S. indexes closed mixed: ^SPX -0.16% to 6,816.51; ^DJI -0.09% to 48,416.56; ^IXIC -0.59% to 23,057.41; ^VIX rose to 17.00 (+3.03%).
• Sector breadth was split: Technology and Energy lagged; Healthcare and Utilities led; Consumer Cyclical outperformed via travel/leisure strength.
• Idiosyncratic moves dominated: NOW -11.60%, AVGO -5.58%, NVDA +0.63%, COIN -6.35%, BMY +3.60%.
• Overnight tone was cautious: European defense fell on peace-talk headlines (Reuters; U.S. yields eased ahead of data (Reuters; choppy trading likely into the holidays (Bloomberg.
• Macro watch: Conflicting reporting on jobs data timing—Reuters highlights potential delays—puts extra emphasis on retail sales and high-frequency labor proxies.
• Structural theme: 24/7 trading push implies new liquidity, clearing, and risk-management demands in 2026 (Reuters.