Stocks Rebound, on Pace for Monthly Gains

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Janet Yellen's final meeting as Fed chair eyed

-- Mexican peso rises after State of the Union speech

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-- Dollar back around three-year low

Global stocks and bonds mostly steadied Wednesday after a selloff, keeping major equity benchmarks on track for one of their best Januarys on record.

In a busy day for markets, investors were parsing President Donald Trump's first State of the Union address, a slew of corporate earnings and Janet Yellen's final meeting as leader of the Federal Reserve later in the day.

Futures pointed to a 0.4% opening gain for the Dow Jones Industrial Average after rising bond yields and pressure on the health-care sector sent it to its biggest daily drop since May on Tuesday. The Stoxx Europe 600 was flat midday following its biggest daily fall of the year.

The mostly brighter tone in stocks Wednesday came as 10-year German government bond yields edged down to 0.613% from 0.627% on Tuesday and U.S. Treasury yields fell to 2.706% from 2.725%, their highest since April 2014. Yields move inversely to prices.

While stocks and bond yields have historically often climbed together in the past, a rapid move higher in yields can hurt steady dividend-payers in the stock market and trigger wider concerns about risky assets if the jump is driven by expectations of higher inflation and less central-bank support.

"When markets are trading on an expensive valuation plane, they become acutely sensitive to any shift in expectations that the benign economic environment is going to be challenged," said Matt Merritt, global head of multiasset strategy at Insight Investment.

The S&P 500 is on track to end the month with gains of nearly 6% amid a better-than-expected earnings season and fresh signs of economic growth, but European stocks have fared better than their U.S. counterparts during the selloff this week, in part because of their higher weighting to banks and insurance companies, which benefit from rising bond yields.

Earnings reports drove some of the steepest swings in individual stocks on Wednesday. Shares of Electronic Arts rose 7% in U.S. premarket trading after announcing record mobile-games revenues in the holiday quarter, while Xerox Corp. gained 6% after shrinking its net loss and sealing a deal in which Japan's Fujifilm Holdings Corp. will take a majority stake.

In Europe, shares of Swedish household-appliance maker Electrolux jumped 6% after it reported higher fourth-quarter profits, helping offset steep post-earnings declines from telecommunications-equipment maker Ericsson, fashion retailer Hennes & Mauritz and U.K. outsourcing group Capita, which shed 42% after suspending its dividend and issuing a profit warning.

Market reaction was fairly muted after Mr. Trump struck a mostly conciliatory tone in his first State of the Union address late Tuesday, although some analysts said the lack of comment on trade or new policies contributed to a brighter mood in risk assets Wednesday.

The Mexican peso rose 0.9% against the dollar, with analysts pointing to some relief that Mexico wasn't directly targeted in the speech, alleviating some short-term concerns about Nafta.

The dollar is likely to take direction later in the day from the conclusion of the Fed's January meeting. While market participants are anticipating no change to policy, many are bracing for a more hawkish statement in light of recent signs that inflation has been on an uptrend.

Since the Fed's last meeting, tax cuts have been passed, economic data has continued to strengthen, the labor market has remained strong, the dollar has weakened and commodity prices have risen, which combined should point to tighter policy ahead, analysts say.

"What we're reckoning with here is the end of this era of very easy money," said Kathy Jones, chief fixed income strategist for Schwab Center for Financial Research. The market still has some room to price in more interest rate increases in the coming years to match the Fed's projections, she noted.

Earlier, Hong Kong's Hang Seng rose 0.9% as gains accelerated near the end of trading, finishing the month up 9.9%- its best month since April 2015.

Japan's Nikkei ended down 0.8% as the yen strengthened against the dollar. The ICE Dollar Index was last down 0.2%, around its lowest since late 2014, on track to end the month down around 3.4%.

Chinese equities fell amid the expiration of futures contracts Wednesday and as an official gauge of China's factory activity fell for a second straight month in January, pointing to a slowing of growth in the manufacturing sector. Still, the Shanghai Composite Index notched its best month since March 2016.

Among January's worst performers, government bonds have suffered steep losses through the start of 2018 while Bitcoin was on track for its worst month in three years, off around 30%, according to CoinDesk.

--Kenan Machado contributed to this article.

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

-- U.S. stocks rebound

-- Boeing rallies after earnings

-- Treasury yields rise ahead of Fed statement

U.S. stocks rebounded Wednesday following their worst two-day stretch in months, lifted by the latest round of corporate earnings.

Some investors said the drops earlier in the week were healthy following a rapid run-up in stocks that pushed major indexes to fresh records. They added that a positive earnings and economic backdrop remains intact following recent tax changes.

"I would expect these kinds of dips that we've seen over the past couple of days would be buying opportunities," said Shannon Saccocia, chief investment strategist at Boston Private.

The Dow Jones Industrial Average rose 122 points, or 0.5%, to 26199, after advancing as much as 261 points earlier in the session. The S&P 500 climbed 0.1% and the Nasdaq Composite added 0.2%.

Even with recent declines, the Dow industrials and S&P 500 were on track for their largest one-month percentage gains in more than 18 months.

Boeing shares added 5.2%, contributing more than 120 points to the Dow industrials, after the aerospace giant forecast a higher profit margin and a big rise in cash generated from record jetliner deliveries.

Shares of Electronic Arts rose 7.2% after posting sharp growth in live services revenue in the holiday quarter, while Xerox gained 5.5% after shrinking its loss and sealing a deal in which Japan's Fujifilm Holdings will take a majority stake.

Health insurer Anthem was also among the S&P 500's best performers. The firm exceeded sales and profit expectations in the most recent quarter.

Technology heavyweights Facebook and Microsoft are scheduled to report earnings after the market closes Wednesday.

A recent rise in Treasury yields that raised some investor concerns about higher inflation and less accommodative central-bank policy continued Wednesday. The yield on the benchmark 10-year U.S. Treasury note climbed to 2.737%, according to Tradeweb, from 2.725% Tuesday -- its highest settlement since April 2014. Yields rise as bond fall.

Investors were parsing President Donald Trump's first State of the Union address and awaiting a Federal Reserve statement following the conclusion of its two-day meeting. This week's meeting is Chairwoman Janet Yellen's final meeting as leader of the central bank. The Fed is expected to leave interest rates unchanged but could offer fresh clues about its 2018 outlook.

While stocks and bond yields have often climbed together in the past, some analysts have said a rapid move higher in yields can hurt steady dividend-payers in the stock market and trigger wider concerns about risky assets.

Since the Fed's last meeting, the labor market has remained strong, the dollar has weakened and commodity prices have risen, which combined should point to tighter monetary policy ahead, analysts say.

"What we're reckoning with here is the end of this era of very easy money," said Kathy Jones, chief fixed income strategist for Schwab Center for Financial Research. The market still has some room to price in more interest-rate increases in the coming years to match the Fed's projections, she noted.

Elsewhere, the Stoxx Europe 600 swung between small gains and losses and closed down 0.2% following its biggest daily fall of the year. Declines from telecommunications-equipment maker Ericsson, fashion retailer Hennes & Mauritz and U.K. outsourcing group Capita -- which shed 43% after suspending its dividend and issuing a profit warning -- helped offset gains in Swedish household-appliance maker Electrolux.

Earlier, Hong Kong's Hang Seng rose 0.9% to cap off its best month since April 2015. Japan's Nikkei ended down 0.8% as the yen strengthened against the dollar.

--Kenan Machado contributed to this article.

Write to Riva Gold at riva.gold@wsj.com and Amrith Ramkumar at amrith.ramkumar@wsj.com

(END) Dow Jones Newswires

January 31, 2018 12:49 ET (17:49 GMT)

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