U.S. stocks retreated, while the dollar advanced as investors assessed the potential implications of President-elect Donald Trump’s policy outlook. Crude oil fell.
Banks led losses as the S&P 500 Index swung back to declines, while Apple Inc. paced a rally in technology companies. The Treasury yield curve flattened, with 30-year bonds outperforming shorter-dated debt as traders moved toward a consensus that the Federal Reserve will raise interest rates next month. The dollar returned to a nine-month high versus major peers. Crude slipped even as Russia’s oil minister expressed optimism that OPEC would reach a deal, with government data showing an increase in American supplies.
The expectation Trump would expand fiscal stimulus to boost U.S. growth sparked a bond-market rout that this week pushed 30-year Treasury yields to their highest level this year, while buoying bank and industrial stocks. Central-bank officials, including Boston Fed President Eric Rosengren, have said more fiscal support would bolster the case for tightening. Rate-hike odds were above 90 percent, even after a report today indicated inflation remains muted, with wholesale prices unexpectedly weak in October.
“Sometimes we have to sit back and take a breath and say ‘we’ve gone too far too fast,”’ said Art Hogan, chief market strategist and director of research for Wunderlich Securities in Boston. “As much as we love to believe that all the pro-business things that the new administration and the Republican Congress is going to move forward with, that’s still next year’s business. You have to look at a market that in the short term is getting stretched.”
Stocks
The S&P 500 fell 0.2 percent to 2,176.94 as of 4 p.m. in New York, after closing Tuesday within 0.5 percent of an all-time high set in August. The Dow Jones Industrial Average halted its longest rally in almost four months, slipping 0.3 percent, while the Nasdaq Composite Index advanced 0.4 percent.
“Overall it seems the market has to pause a little bit to assess how far it’s gone since Trump’s win,” said Benno Galliker, a trader at Luzerner Kantonalbank AG in Lucerne, Switzerland. “We haven’t seen this kind of sector dispersion in a long time. Now everything has changed -- it’s a paradigm shift.”
The Stoxx Europe 600 Index has alternated between gains and losses for seven straight days. The gauge slipped 0.2 percent Wednesday after earlier jumping and falling as much as 0.6 percent. Bayer AG was one of the biggest contributors to the move, dragging down chemical companies after issuing 4 billion euros ($4.3 billion) of convertible bonds.
The MSCI Emerging Markets Index rose for a second day, adding 0.6 percent.
In the Asia-Pacific region, stocks in New Zealand extended gains into Thursday, rising for a fourth straight session. Futures on equity benchmarks elsewhere in the region signaled losses, with Nikkei 225 Stock Average futures in Osaka slipping at least 0.2 percent with contracts on indexes in Australia, South Korea and Hong Kong.
Bonds
Thirty-year Treasury yields fell four basis points, or 0.04 percentage point, to 2.92 percent, according to Bloomberg Bond Trader data. U.S. two-year yields rose less than one basis point to 1 percent. The gap between two- and 30-year yields declined to about 1.92 percentage points. It touched as low as 140 basis points in August.
“The market is firming in its expectations that the Fed is going to go,” said Aaron Kohli, a fixed-income strategist in New York at BMO Capital Markets Corp., one of 23 primary dealers that trade with the central bank. “I don’t think the economic data is good this morning, but it also wasn’t bad enough to deter the Fed. We sold off very sharply in the last week and a half, and there’s some money that’s being put to work.”
Traders assign about a 94 percent probability, the highest level this year, to the Fed boosting rates at its final meeting for the year on Dec. 13-14, futures contracts indicate.
European bonds fell, with yields on Portugal’s 10-year bonds rising by 18 basis points to 3.65 percent. Italy’s 10-year yield increased seven basis points to 2.03 percent, while the rate on similar-maturity German bunds dropped to 0.30 percent.
Currencies
The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, rose 0.3 percent. The gain built on a 2.8 percent surge from last week, which was the most since 2011.
“The medium-term outlook for the dollar is still solid, and we expect it to strengthen well into the first quarter of next year,” said Ned Rumpeltin, the European head of currency strategy at Toronto-Dominion Bank in London. “But some in the market might adopt a cautious near-term stance ahead of the testimony and during the shaping of the new administration.”
Currencies of commodity-producing nations, including the Australian dollar and South African rand, were among the biggest losers Wednesday. The MSCI Emerging Markets Currency Index fell 0.3 percent as the yuan slid to its weakest point since December 2008.
The yen was little changed early Thursday at 109.10 per dollar after slipping 2.4 percent over the past two sessions.
Commodities
West Texas Intermediate crude for December delivery dropped 24 cents, or 0.5 percent. to settle at $45.57 a barrel on the New York Mercantile Exchange, while Brent for January settlement retreated 32 cents to $46.63 a barrel in London.
Stockpiles climbed by 5.27 million barrels last week, according to the Energy Information Administration, with a 1.5 million barrel gain forecast by analysts surveyed by Bloomberg. Refiners used 16.1 million barrels a day of crude, up 309,000 barrels from a week earlier. Russia is ready to support an OPEC decision to stabilize the market, Energy Minister Alexander Novak said, with OPEC ministers due to meet Nov. 30 to discuss how to implement production cuts.
“You would have expected to see more selling after such a big build in crude,” said Gene McGillian, manager of market research for Tradition Energy in Stamford, Connecticut. “There’s a feeling that OPEC will come to some sort of an agreement later this month, which makes selling risky.”
Copper and aluminum declined in London, extending their retreats from one-year highs reached last week, while zinc retreated from its highest close since 2010. Metals rallied last week on a combination of increased speculative interest in China and optimism President-elect Trump’s pledge to spend as much as $1 trillion on infrastructure will boost demand.
Gold fell 0.3 percent Wednesday to $1,225.28 an ounce.
--With assistance from Netty Ismail Hiroyuki Sekine Adam Haigh Sofia Horta e Costa Alan Soughley David Goodman Stephen Kirkland James Regan Paul Dobson Sarah McDonald Oliver Renick Jeremy Herron Kelly Gilblom Maciej Onoszko Anchalee Worrachate and Mark Shenk To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net, Yun Li in New York at yli934@bloomberg.net, John Hyland in New York at jhyland22@bloomberg.net. To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Emma O'Brien at eobrien6@bloomberg.net, Rita Nazareth
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