Stocks pull back from record highs as bond yields fall again | Nation & World

The yield on the 10-year government bond fell to 1.30%, the lowest level since February, after falling to 1.32% the day before. Benchmark yields, used to determine interest rates on mortgages and many other types of loans, have fallen steadily in recent weeks as traders shift money into bonds. The 10-year yield stood at a high of 1.74% at the end of March.

The bond market has been signaling concerns about the strength of the recovery for months, in particular that it may have peaked and is now leveling off at a steady pace. The stock market has largely ignored those signals, analysts said, but could be getting that message amid struggling job growth and lackluster economic reports.

You can’t ignore what the bond market has been telling us, said JJ Kinahan, chief strategist at TD Ameritrade.

The S&P 500 fell 37.31 points to 4,320.82. The Dow Jones Industrial Average lost 259.86 points, or 0.7%, to 34,421.93. The Nasdaq composite broke a three-day streak of closing highs, falling 105.28 points, or 0.7%, to 14,559.78.

Shares of smaller companies also fell. The Russell 2000 index fell 21.17 points, or 0.9%, to 2,231.68.

Longer-term returns are moving in line with investor expectations for inflation and economic growth, and both are still very strong and much higher than in recent years. But Wall Street increasingly suspects they have already peaked as the economy moves past the first catapult stage of the recovery from the pandemic.

For example, two recent reports showed that the manufacturing and services sectors are still growing, but at a slower pace than in previous months and below economists’ expectations.

On Thursday, the Labor Department said the number of Americans applying for… unemployment benefits rose slightly last week as the economy and labor market appear to be recovering from the coronavirus recession.

All told, unemployment claims rose 2,000 from the previous week to 373,000. Weekly applications, which generally follow the pace of layoffs, have fallen steadily this year from over 900,000 at the start of the year.

Investors are also measuring the potential impact of COVID-19 variants hampering a resurgence in trade and travel. Fans banned from Tokyo Olympics following the state of emergency aimed at containing rising coronavirus infections in the capital.

Part of the sharp decline in long-term bond yields could also be attributed to investors quickly reversing bets that they would continue to rise as the economy continued its sharp recovery.

Investors have torn between enthusiasm about an economic recovery and the unease that the Fed and other central banks could roll back stimulus to cool price increases.

minutes The Fed’s June meeting showed officials are getting closer to cutting bond purchases, although most analysts don’t expect a reduction until the end of the year. At that meeting, policymakers said they planned to raise interest rates as early as 2023, earlier than previously expected.

It’s been a bit of a quiet period, so any news from the Fed will be met with strong reactions, Kinahan said. This is really a guessing game of what the Fed is going to do next and how we can move forward.

Railroad stocks were the biggest losers in the S&P 500 on Thursday after a published report said the Biden administration plans to sign an executive order next week directing regulators to take action against consolidation and anti-competitive pricing in the rail and shipping industries. The report, published by The Wall Street Journal, quoted an unnamed source familiar with the situation. Kansas City Southern fell 7.9% for the biggest loss in the S&P 500. Norfolk Southern fell 7.2%, CSX fell 6.2% and Union Pacific closed 4.4% lower.

Investors will turn their attention to corporate earnings starting next week, when major banks such as JPMorgan Chase, Goldman Sachs and Bank of America report their results. Banks tend to be a proxy for the overall economy, so investors will carefully analyze the reports and listen to what banks are saying about the status of loans and spending as the recovery continues.