U.S. stocks edged lower on Tuesday as investors digested fresh inflation data, early earnings results, and shifting sector leadership. While the broader market pulled back modestly from record highs, underlying trends suggested resilience rather than weakness, with select AI-related stocks and semiconductors continuing to attract buying interest.
The S&P 500 finished the session down about 0.2%, while the Dow Jones Industrial Average fell roughly 0.8%, weighed down by declines in key financial names. The Nasdaq Composite slipped just under 0.1%, and small-cap stocks also edged lower. Despite the red close, major indexes remained near their highs, signaling consolidation rather than a major trend reversal.
Markets initially reacted positively to new economic data showing a slight easing in inflation pressures. However, enthusiasm was tempered as earnings season kicked off with mixed results from major financial institutions. JP Morgan Chase, a bellwether for the banking sector, posted results that failed to impress investors, triggering a sharp selloff in the stock and dragging the broader financial sector lower.
JP Morgan shares fell more than 4% on the day, closing below their 50-day moving average in what technicians view as a bearish downside reversal. Delta Air Lines also slid more than 2%, breaking below its 21-day moving average after earnings, reinforcing investor caution around earnings-related volatility.
The weakness in financials was clearly reflected in the Financial Select Sector SPDR Fund (XLF), which dropped nearly 2% and fell below short-term support levels. Investors are now closely watching upcoming earnings from Citigroup, Bank of America, Wells Fargo, Goldman Sachs, and Morgan Stanley to determine whether investment banking and revenue pressures are sector-wide or isolated.
Software stocks were another notable laggard. The iShares Expanded Tech-Software ETF (IGV) declined nearly 2%, continuing a downtrend that has persisted for months. The group remains below key moving averages, and its relative strength versus the broader market has been weakening since mid-2024. While individual software leaders such as Palantir have posted strong gains, the overall group’s underperformance suggests selective exposure rather than broad-based buying.
In contrast, market breadth remained relatively healthy. The equal-weighted S&P 500 ETF (RSP) finished roughly flat, indicating that average stocks are holding up better than mega-cap leaders. Meanwhile, the equal-weighted Nasdaq 100 ETF (QQEW) fell more sharply, reflecting concentrated weakness in large technology and software names.
Growth-oriented and speculative stocks showed mixed but generally constructive action. The ARK Innovation ETF edged higher, supported by exposure to artificial intelligence, advanced technology, and select crypto-related names. Tesla, ARK’s largest holding, was largely unchanged on the day, helping stabilize the fund.
Semiconductors continued to stand out as a leadership group. The VanEck Semiconductor ETF (SMH) posted modest gains and remains near record highs. Despite intraday reversals, the sector’s overall trend remains firmly positive, supported by strong demand for AI chips and related infrastructure.
Another area showing strength was aerospace and defense. The iShares U.S. Aerospace & Defense ETF (ITA) rose about 0.5%, extending gains from a recent breakout. Defense contractors, space-related companies, and traditional aerospace manufacturers all contributed to the sector’s momentum. Even Boeing, which had lagged significantly in prior months, has rebounded to fresh highs, underscoring renewed confidence in the group.
On the stock-specific front, several AI-linked names attracted attention. Celestica surged more than 4%, reclaiming its 50-day moving average after a volatile period in December. The stock had previously broken below key support amid concerns about how next-generation AI chips might impact demand for components such as connectors, cables, and cooling systems. Tuesday’s rebound suggests investors are becoming more comfortable with the company’s long-term growth outlook, which includes accelerating earnings and revenue growth.
Comfort Systems also delivered a strong performance, rising more than 3% and breaking above a key resistance level near 1,036. The stock has shown resilience, holding its 50-day line during recent pullbacks and now pushing higher as concerns about reduced cooling demand fade. Strong fundamentals and a rising relative strength line continue to support the bullish technical setup.
Google emerged as one of the most notable large-cap winners. Shares gained more than 1%, moving deeper into a buy zone following a recent breakout. Unlike some mega-cap peers, Google has managed to integrate artificial intelligence into its core business in a way that is driving growth rather than simply increasing costs. Strategic partnerships, AI-driven advertising improvements, and expanding cloud capabilities have helped alleviate earlier concerns that AI spending would dilute profitability.
Technically, Google’s relative strength line has reached new highs, and trading volume on the weekly chart reflects sustained institutional accumulation. The stock is increasingly viewed as one of the leading mega-cap names in the current market cycle, rivaling even Nvidia in terms of influence and momentum.
Overall, Tuesday’s market action highlighted the importance of selectivity. While headline indexes pulled back, leadership continues to rotate rather than disappear. Investors are being rewarded for focusing on sectors and stocks that are working—such as semiconductors, aerospace, and select AI leaders—while avoiding areas under pressure, including software and certain financials.
With earnings season just beginning, volatility is likely to increase in the coming weeks. Market participants are advised to stay diversified, avoid overconcentration in struggling sectors, and remain alert to earnings-related risks. As long as major indexes hold near their highs, the broader uptrend remains intact, even as leadership continues to evolve.