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 300 points at one point.
The blue-chip index then pared its losses and was recently down 123 points, or 0.5%, to 24150.
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."
The Wall Street Journal hasn't independently confirmed the report.
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.
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"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.
Assets that many investors consider havens rallied, with the yield on the 10-year U.S. Treasury note falling to 2.362%, according to Tradeweb, compared with 2.417% Thursday. Bond yields fall as prices rise.
Gold jumped 0.7% to $1285.60, backing off its session high.
Meanwhile, the U.S. dollar retreated, with the WSJ Dollar Index -- a measure of the dollar against a basket of 16 currencies -- falling sharply before paring declines.
The day's moves interrupted a rally that had brought major U.S. stock 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 0.7% Friday but remained up 5% for the week, 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.
Shares of technology companies in the S&P 500, which have doubled the broader index's gains for the year as investors have placed bets on fast-growing companies, paused a rally.
The S&P 500 tech sector fell 1.2% Friday and was recently down 2.7% for the week.
Write to Akane Otani at firstname.lastname@example.org and Mike Bird at Mike.Bird@wsj.com
(END) Dow Jones Newswires
December 01, 2017 12:58 ET (17:58 GMT)