U.S. stocks closed mixed on Tuesday, with the Dow Jones Industrial Average reaching a record high for the third consecutive session. The S&P 500 edged lower amid disappointing retail data and heightened concerns about artificial intelligence's impact on the financial sector.

The Dow rose 52.27 points, or 0.10%, to close at 50,188.14. The Nasdaq Composite fell 136.20 points, or 0.59%, to 23,102.47, while the S&P 500 declined 23.01 points, or 0.33%, to 6,941.81. During the session, the Dow reached an intraday peak of 50,512.79, marking another all-time high.

Shares of retailers Costco and Walmart dropped more than 2% and 1%, respectively, following a retail sales report showing flat consumer spending in December. This fell short of the 0.4% monthly increase anticipated by economists surveyed by Dow Jones. Retail sales had grown 0.6% in November. Investors are now awaiting key employment data on Wednesday and the Consumer Price Index (CPI) report on Friday.

Anthony Saglimbene, chief market strategist at Ameriprise Financial, noted, "There is currently weak confidence among middle- and low-income consumers, who are also concerned about the job market and feel somewhat uncertain. If January job growth comes in weaker than expected, it could dampen market sentiment."

Financial stocks faced broad pressure on Tuesday after tech platform Altruist introduced a new AI-powered tax planning tool. LPL Financial shares fell 10%, Charles Schwab dropped 8%, and Morgan Stanley declined 3%.

Saglimbene added, "The market appears to be shifting toward sectors less affected by AI," pointing to recent gains in materials and utilities.

Last Friday, a rebound in technology stocks drove Wall Street to a second straight day of gains, with the Dow setting new intraday and closing records. Despite recent selling pressure, technical indicators remain largely intact, and investors are hopeful the market can sustain its upward trend. After briefly falling below its 50- and 100-day moving averages last week, the S&P 500 has since recovered those key levels. Many asset classes have outperformed the index, which traders view as a bullish signal.

JPMorgan strategists suggested that software stocks may rebound from a historic decline, as the market's expectations for AI's near-term disruptive impact appear overstated. A team led by Dubravko Lakos-Bujas noted that "extreme price movements" could lead to a rotation back into the sector, at least in the short term. They recommended increasing exposure to high-quality software stocks that are more resilient to AI disruption.

In a report, the team wrote, "Given light positioning, excessive pessimism about AI's impact on the software industry, and solid fundamentals, we believe the risk-reward balance is increasingly tilted toward a rebound."

iCapital chief investment strategist Sonali Basak commented, "We don’t expect smooth sailing. The market will be volatile, and investors will need to be selective, but there will still be winners along the way."

On the Federal Reserve's policy outlook, State Street strategists suggested the central bank could cut interest rates three times this year, potentially leading to a 10% decline in the U.S. dollar. Lee Ferridge, a strategist at State Street, noted that if the next Fed chair takes a more dovish stance than expected, the dollar could fall significantly. Markets currently anticipate the Fed will begin cutting rates around June, with at least two 25-basis-point reductions by year-end.

Ferridge added that a third cut in 2026 is possible, partly due to potential pressure from President Donald Trump on Jerome Powell's successor. "Three cuts are possible," Ferridge said in an interview on the sidelines of the TradeTech FX conference in Miami. "Two is a reasonable baseline, but we must acknowledge that we are entering a period of greater uncertainty in Fed policy."

Economic data released Tuesday showed U.S. retail sales unexpectedly stalled in December, suggesting consumers were more cautious with year-end spending. According to the Commerce Department, unadjusted retail sales were flat after a 0.6% increase in November. Excluding auto dealers and gas stations, sales also showed no growth.

Eight of the 13 retail categories declined, including clothing and furniture stores. Auto dealer sales also fell, while spending at building material stores and sporting goods retailers rose. The data indicate weakening consumer momentum as the holiday shopping season concluded. Although many economists expect tax refunds to support demand early this year, households remain concerned about high living costs and the job market.

The breadth of consumer spending is also a concern. While stock market gains may boost demand, there are signs that lower-income Americans, who rely on modest wage growth, are cutting back on non-essential purchases.

The January nonfarm payrolls report, delayed due to a brief budget dispute in Congress last week, will be released on Wednesday. This report will not only provide the latest employment figures for January but also include final revisions for full-year 2025 job growth. Market participants are closely watching for a clearer picture of the U.S. labor market's true condition.

Preliminary data from the Bureau of Labor Statistics indicated that job growth from April 2024 to March 2025 was overstated by 911,000 positions. The final revisions are expected to reflect the actual impact of this overestimation.