Stocks Up as Bond Yields Move Higher

By Riva Gold and Kenan Machado Features Dow Jones Newswires

Stocks pause after winning streak

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-- Bond yields keep climbing

-- Hennes & Mauritz falls after earnings

Stocks showed signs of stalling Thursday while bond yields continued to climb on expectations for stronger growth and tighter monetary policy.

The Dow Jones Industrial Average fell 48 points, or 0.2%, to 22293 shortly after the opening bell. The S&P 500 dropped 0.1%, and the Nasdaq Composite declined 0.3% with investors continuing to digest a GOP proposal to overhaul the tax code.

The plan released Wednesday to sharply reduce tax rates on businesses and many individuals prompted investors to sell bonds on expectations the cut would boost growth and accelerate the Federal Reserve's plans to lift interest rates.

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"In the short term, this is probably positive for growth," said Luca Paolini, chief strategist at Pictet Asset Management, noting that if the plan is implemented it would likely boost bond yields, financial stocks and shares of smaller companies that had come under pressure when investors were growing increasingly skeptical of tax changes earlier this year.

Financials in the S&P 500 had climbed after the plan was unveiled Wednesday while the Russell 2000 U.S. small-stock index jumped 1.9% to a record high as smaller and more domestically-oriented companies are expected to benefit more from the shake-up to taxes.

Yields on 10-year Treasurys climbed to 2.336% Thursday from 2.309% after notching their biggest daily gain since March. Yields on 10-year German government bonds rose to 0.491% from 0.461% on Wednesday. Yields move inversely to prices.

Still, some analysts were skeptical about the long-term viability and ultimate market impact of the proposal. "We need to wait and see how much of this will be implemented and what kind of reaction the Fed will have," said Mr. Paolini.

The WSJ Dollar Index, which tracks the dollar against a basket of 16 currencies, swung between small gains and losses Thursday after its biggest three-day gain this year and was last down 0.1%.

"At this stage, it is still too early to make any adjustments to our U.S. dollar outlook based on the tax proposals," said strategists at MUFG in a note, citing the legislative process ahead.

Investors were already betting the Fed was more likely to raise interest rates in December than previously expected following speeches from Fed officials earlier this week, which has contributed to the rise in government bond yields.

Elsewhere, the Stoxx Europe 600 edged down 0.1%, weighed down by declines in retail and utilities companies.

Shares of Swedish fashion company Hennes & Mauritz fell 5.1%, leading losses in the region, after it said net profit slumped 20% in the third quarter. European retail shares have fallen 4% this year even as the wider market has climbed 6.6%, in part due to g rowing competition from online retailers.

Earlier, higher bond yields and a weaker yen lifted shares in Japan. The Nikkei Stock Average was up 0.5%, recovering from Wednesday's declines. Shares of banks and insurers, which are large holders of U.S. government bonds, drove gains in Tokyo shares.

Banking stocks also drove Australia's benchmark index higher, with the S&P/ASX 200 up 0.1%.

Chinese markets faced selling pressure ahead of a week-long break. The Shanghai Composite Index was down 0.2%. Hong Kong's Hang Seng Index fell 0.8% to a six-week low amid declines in property developers, Tencent and China Construction Bank.

"People are hesitating to buy shares in the market given holidays next week," said Ivan Ip, a stock strategist at UOB Group in Hong Kong.

Hong Kong's biggest share listing of the year posted a strong debut on Thursday. ZhongAn Online P&C Insurance, a Chinese insurer, opened up 16%, and ended up 9.2%.

--

Kevin Kingsbury

,

John Wu

and Kosaku Narioka contributed to this article.

Write to Riva Gold at riva.gold@wsj.com and Kenan Machado at kenan.machado@wsj.com

-- Dow Jones Industrial Average rises

-- European stocks extend winning streak

-- Treasury yields keep climbing

U.S. stocks seesawed Thursday, as rising shares of chemical and health-care companies helped support major indexes.

The Dow Jones Industrial Average was recently up 35 points, or 0.2%, to 22376, while the S&P 500 rose less than 0.1%. The Nasdaq Composite slipped 0.2%.

Overall moves were muted as investors took advantage of some recent pullbacks and gauged the likelihood that Republicans would pass their proposal to overhaul the tax code, analysts said. The S&P 500 continued its trend of trading in a narrow range.

"It's likely we'll see some of that churning in a directionless market while the specifics of the [tax] legislation are debated," said Mike Allison, an Eaton Vance portfolio manager.

Shares of material companies rose 0.6% in the S&P 500, as several chemical firms notched gains of more than 1%. Eastman Chemical was one of the leaders, up 2.7%.

Health-care stocks rose 0.3%, with drug company AbbVie rising roughly 6% after it resolved an intellectual-property lawsuit with Amgen regarding AbbVie's arthritis drug Humira. Amgen rose 0.8%.

Tech and financial shares gave back some of the gains that had helped lift indexes higher Wednesday, ending a four-session losing streak for the Dow industrials. Shares of smaller companies slipped, after they had rallied a day earlier following the release of the tax proposal.

While the plan unveiled Wednesday is expected to benefit smaller companies that tend to generate more revenue domestically, some analysts expressed skepticism that Republicans would be able to push the plan through unaltered, especially after the GOP faltered in its latest attempt to repeal the Affordable Care Act.

"We need to wait and see how much of this will be implemented and what kind of reaction the Fed will have," said Luca Paolini, chief strategist at Pictet Asset Management.

Republicans are proposing to sharply reduce tax rates on business and many individuals, prompting investors to sell bonds partly on expectations that the cut would boost growth and accelerate the Federal Reserve's plans to lift interest rates.

Meanwhile, fresh data pointed to steady U.S. economic growth, which could encourage the Fed to proceed with a third rate increase later this year.

U.S. economic output grew at a 3.1% annual rate in the second quarter, slightly stronger than previously thought and marking the best growth in two years, according to revised data released by the Commerce Department on Thursday.

The number of Americans applying for new unemployment benefits rose last week, the Labor Department said Thursday, at least partially reflecting job losses because of major summer storms. Still, overall jobless claims remain historically low.

The yield on the benchmark 10-year Treasury note climbed to 2.326%, according to Tradeweb, from 2.309% Wednesday, when it notched its biggest daily gain since March. Yields rise as prices fall.

Investors have been stepping up bets that the Fed will raise interest rates in December following speeches from Fed officials earlier this week, which has contributed to the rise in government bond yields.

The WSJ Dollar Index, which tracks the dollar against a basket of 16 currencies, swung between small gains and losses Thursday after its biggest three-day gain this year, and was recently down 0.2%.

Elsewhere, the Stoxx Europe 600 rose 0.2%. Japan's Nikkei Stock Average added 0.5%, recovering from Wednesday's declines, while Chinese markets faced selling pressure ahead of a week-long break. The Shanghai Composite Index fell 0.2% and Hong Kong's Hang Seng Index fell 0.8% to a six-week low.

Write to Riva Gold at riva.gold@wsj.com and Michael Wursthorn at Michael.Wursthorn@wsj.com

(END) Dow Jones Newswires

September 28, 2017 12:36 ET (16:36 GMT)