Asian shares combined after Wall St rebounds from uncertainty
US stocks bounced back from an early stumble and are on their way to further gains Wednesday afternoon, despite government bond yields stalling after their rapid surge.
The S&P 500 was up 0.3% after switching between small gains and losses in early trading. It remains close to its record high late last week. The Dow Jones Industrial Average rose 29 points, or 0.1%, to 31,097 as of 2:58 p.m. Eastern Time, and the Nasdaq Composite was up 0.6%.
“What we saw from Monday is just exhaustion at part of the rally,” said Liz Ann Sonders, chief investment strategist at Charles Schwab. “There is a need to go through a period of consolidation to some extent.”
Markets around the world have been booming lately on optimism that a healthier economy is on the way, the introduction of coronavirus vaccines, and the prospect of further stimulus from a U.S. government soon to be run by Democrats .
Some of the biggest moves have been in the bond market, where expectations of increased federal borrowing, economic growth and inflation have pushed longer-term government bond yields to their highest levels since last spring.
However, the 10-year Treasury yield slowed its surge, falling to 1.10% from 1.12% late Tuesday. Analysts said statements by two Federal Reserve officials the day before helped allay concerns they might restrict Treasury purchases. These purchases have helped keep interest rates low in order to stimulate financial markets and the economy.
The concerns are reminiscent of the 2013 “taper tantrum” when markets fell after the Fed announced it would slow bond purchases as the economy rebounded.
Low interest rates were a major contributor to the record rise in stock markets, even if much of the economy is still suffering from the worsening pandemic. The 10-year rate of return rose from 0.90% on January 4, the day before two runoff elections in Georgia that saw the Democrats control the Senate, and thus Washington.
The Fed was free to keep short-term rates near zero, in part because inflation has remained weak. A report on Wednesday showed that consumer-level prices were 1.4% higher in December year over year. That was a little more than economists expected, although it remains relatively low.
The Fed published its latest “Beige Book” on Wednesday. The survey of US business conditions found that most of the Fed’s 12 regions had seen modest gains in economic activity in recent weeks. However, there was a decline in activity in two districts and little or no change in two other regions.
If interest rates continue to rise, it could support the argument for critics of the stock market who say they rose too high and made prices too expensive.
Stocks that would particularly benefit from low interest rates led the way on Wednesday morning. Utility stocks tend to pay relatively high dividends, which is why their appeal often increases as bonds pay less interest and attract fewer investors looking for income. Utilities rose 1.9%, the largest increase among the 11 sectors in the S&P 500.
Tech stocks rose as well, as low interest rates help investors be more willing to pay high prices for their expected growth. Within the group, Intel rose 7.7% after industry veteran Pat Gelsinger took over the helm next month. Revenue and earnings for the final quarter are also expected to be above its previous guidance.
At the end of the defeat, there were some of the market’s biggest winners, who rose in anticipation of a stronger economy and higher interest rates. Commodity producers in the S&P 500 fell 1%, while industrials fell 0.6% and financials 0.1%.
Smaller company stocks also pulled back from their big recent rally. The Russell 2000 index for small cap stocks was down 0.3%, although it has remained 7.4% higher so far for 2021. That tops the 1.6% increase for the big stocks in the S&P 500.
There are also other risks hanging over the market, which are characterized by the worsening pandemic. Accelerating coronavirus numbers and hospital admissions are hurting the economy more, and U.S. employers cut more jobs last month than they added for the first time since spring.
Political uncertainty continues to grasp Washington, and President Donald Trump appears to be on the verge of being charged a second time. Democrats and even some Republicans say Trump instigated a riot after encouraging a bunch of loyalists who stormed the Capitol last week.
However, investors have largely overlooked such political turmoil and instead focused on expectations for a stronger economy.
President-elect Joe Biden is expected to release details of his economic support plan on Thursday. They could involve making larger payments in cash to most Americans
The indices also made only modest movements on the European stock markets. The German DAX achieved a return of 0.1% and the French CAC 40 a return of 0.2%. The FTSE 100 in London fell 0.1%.
The Asian markets were mixed. The Japanese Nikkei 225 rose 1% and the South Korean Kospi rose 0.7%. Hong Kong’s Hang Seng fell 0.1% and Shanghai stocks lost 0.3%.
AP Business Writer Joe McDonald contributed to this.
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