Equities edged up Tuesday in light trading as the year-end rally continued. The Dow Jones industrial average and the S&P 500 both gained 0.4 percent and the Nasdaq rose 0.5 percent. US Treasury yields were lower at the short end and higher at the long end. The dollar and oil prices advanced.

Investor sentiment remains bullish on the view that a soft landing is occurring and interest rates have peaked while earnings remain resilient. A very strong US Treasury 2-year note sale, with the high yield accepted in the auction well below its level in the when-issued market, added to the market's hopeful narrative on rates and inflation.

Among sectors, small cap stocks had another strong day, which pointed to a broad-based rally. Energy stocks outperformed with a rally in oil prices. Other best performers included technology, industrials, consumer discretionary, and communications services.

Market Reflections track market reaction to the trading day's major events. Economic data, policymaker speeches, and company news are featured in this report as well as key indexes and financial instruments.

Understanding why markets respond as they do is fundamental for an investor. Market Reflections help explain how the day's events, news, and data impact the outlook for the economy and for market prices.