U.S. stocks retreated Thursday as government bond prices slid.
Stocks' declines were broad, with all 11 sectors in the S&P 500 falling. The day's moves put the index on course to close lower after rising in the previous three trading sessions.
Some investors and analysts have said the 2017 stock rally could stall in the second half of the year, especially if borrowing costs rise but economic growth is mediocre. In recent weeks, government bond yields have climbed as central banks have signaled the end of monetary stimulus is coming.
"There is a near-unanimous view coming out of central banks for an unwinding of this unconventional policy, either through interest rate rises or pulling back on quantitative easing, or in the United States, selling down some of the central bank holdings," said Paul Flood, multiasset portfolio manager at Newton Investment Management. "People have finally woken up to the fact there's not a backstop, a forced buyer in the marketplace anymore," he said.
The Dow Jones Industrial Average lost 118 points, or 0.6%, to 21359 on Thursday. The S&P 500 fell 0.7% and the Nasdaq Composite shed 0.8%, pressured by declines in technology and biotech shares.
Energy stocks, the worst-performing sector in the S&P 500 in 2017, fell 1.6%, with Newfield Exploration, Apache and Cabot Oil & Gas among the biggest decliners. Seesawing oil prices have weighed on shares of energy companies, pulling them down 15% in the S&P 500 so far this year.
Consumer-discretionary shares lost 0.8% in the S&P 500 on Thursday. Shares of Victoria's Secret parent L Brands, which reported a steep drop in same-store sales for the month of June, fell 14% and were among the biggest decliners in the sector.
Government bonds pulled back, with the yield on the 10-year U.S. Treasury note rising to 2.378% on Thursday, according to Tradeweb, from 2.334% Wednesday. Yields rise as bond prices fall.
A hiccup in the bond market could ripple over into stocks in the short term, but if the economy continues to strengthen, there is a good chance equities will move higher too, said Brent Schutte, chief investment strategist at Northwestern Mutual Wealth Management.
The Stoxx Europe 600 fell 0.7% after minutes from the European Central Bank's June meeting showed policy makers considered dropping a pledge to accelerate their massive bond-buying program.
Banks and insurance companies in Europe outperformed as they tend to benefit from higher government bond yields.
Japan's Nikkei Stock Average fell 0.4% after the yen strengthened against the dollar, pressuring the export-heavy index. Hong Kong's Hang Seng Index eased 0.2% even as index heavyweight Tencent inched higher, while the Shanghai Composite Index added 0.2%.
Write to Riva Gold at email@example.com and Akane Otani at firstname.lastname@example.org
(END) Dow Jones Newswires
July 06, 2017 15:32 ET (19:32 GMT)