U.S. Stocks Pause After Rally

By Akane Otani and Mike Bird Features Dow Jones Newswires

U.S. stocks and government bond yields slid Friday, reversing course after a rally that lifted the Dow Jones Industrial Average to its biggest one-day gain of the year.

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Stocks were little changed at the start of the trading session, then sold off sharply before midday, sending the Dow industrials down more than 270 points in what was shaping up to be one of the biggest one-day declines of the year.

Traders said the selling appeared to start after ABC News reported that former national security adviser Michael Flynn was expected to testify that President Donald Trump "directed him to make contact with the Russians."

As the report spread over social media, Mohit Bajaj, director of ETF trading solutions at brokerage WallachBeth Capital, noticed a pickup in trading volumes, particularly among S&P 500 futures.

"People are just trying to protect themselves right now," Mr. Bajaj said. "I wouldn't be surprised if we saw a bounce later on," he added, noting that investors have often rushed in to scoop up stocks following sharp pullbacks this year.

The Dow industrials was recently down 332 points, or 1.4%, to 23944. The S&P 500 fell 1.5% and the Nasdaq Composite lost 1.9%.

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Assets that many investors consider havens rallied, with the yield on the 10-year U.S. Treasury note rising to 2.337%, according to Tradeweb, compared with 2.417% Thursday. Bond yields fall as prices rise.

Gold jumped 1.1% to $1290.50.

The day's moves interrupted a rally for U.S. stocks that had brought major indexes to fresh highs this week.

Recent reports have shown consumer spending, home sales and business investment picking up, encouraging investors who have wondered whether an economy that has expanded for nine years could sustain its momentum.

Senate Republicans have also drawn closer to holding a vote on a tax bill that many analysts say could help boost corporate profits, sending government bond yields and shares of financial stocks higher through Thursday.

The KBW Nasdaq Bank Index of large U.S. lenders fell 1.9% Friday but had gained nearly 5% for the week through Thursday and been on pace for its biggest one-week advance of the year. Banks are expected to be among the biggest beneficiaries of a corporate tax cut, analysts said, while bond investors say Treasurys could suffer if tax cuts spurs inflation that weakens demand for so-called haven assets.

"We've had one heck of a recovery, global trade being a lot more positive than we initially thought it would be and central banks still remaining pretty accommodative on the whole," said Tom Stringfellow, chief investment officer of Frost Investment Advisors.

The prospect of a tax cut is providing additional fuel for U.S. stocks to chug higher, Mr. Stringfellow added, even as valuations have made many of the best performers in the stock market look pricey.

Write to Akane Otani at akane.otani@wsj.com and Mike Bird at Mike.Bird@wsj.com

(END) Dow Jones Newswires

December 01, 2017 12:00 ET (17:00 GMT)