Wall Street drifts higher; Treasury yields slow their rise

Stocks notched modest gains Wednesday following another choppy day of trading on Wall Street, leaving the market near its recent record highs.

The S&P 500 inched up 0.2% after flipping between small gains and losses in the early going. Gains in several Big Tech companies, including Intel, Apple and Amazon, helped nudge the S&P 500 higher, even tough most of the stocks in the index fell. Those gains outweighed losses in industrial, materials and other sectors.

Treasury yields stalled after rising sharply since the beginning of the year. The benchmark 10-year yield dipped as concerns calmed that the Federal Reserve may curtail its purchases of Treasurys. Expectations of higher government spending and the possibility of inflation have helped drive bond yields higher.

“There’s a tug of war in the market right now as to whether or not inflation will remain muted,” said Quincy Krosby, chief market strategist at Prudential Financial. “The market does not want to see inflation climb at a pace that forces the Fed’s hand."

The S&P 500 rose 8.65 points to 3,809.84. The Dow Jones Industrial Average fell 8.22 points, or less than 0.1%, to 31,060.47. The tech-heavy Nasdaq composite added 56.52 points, or 0.4%, to 13,128.95.

Markets around the world have rushed higher recently on building optimism that a healthier economy is on the way because of the rollout of coronavirus vaccines and the prospect for more stimulus from a U.S. government soon to be run by Democrats.

Some of the biggest action has been in the bond market, where expectations for increased federal borrowing, economic growth and inflation have pushed longer-term Treasury yields to their highest levels since last spring.

The yield on the 10-year Treasury slowed its ascent, though, and dipped to 1.10% from 1.12% late Tuesday. Analysts said statements from two Federal Reserve officials a day earlier helped to calm concerns that it may curtail its purchases of Treasurys. Those purchases have helped keep rates low in hopes of boosting financial markets and the economy.

The concerns are reminiscent of the 2013 “taper tantrum,” when markets tumbled after the Fed said it expected to slow bond purchases as the economy recovered.

A bond auction Wednesday that drew strong demand also helped pull Treasury yields lower, Krosby said.

Low rates have been one of the main underpinnings for the stock market’s rise to records, even as much of the economy still struggles under the worsening pandemic. The 10-year yield has been spurting higher, up from 0.90% on Jan. 4, the day before two runoff elections in Georgia gave control of the Senate — and thus Washington — to Democrats.

The Fed has had the freedom to keep short-term rates at nearly zero in part because inflation has remained weak. A report on Wednesday showed that prices at the consumer level were 1.4% higher in December from a year earlier. That was slightly more than economists expected, though it remains relatively low.

The Fed released its latest “Beige Book" Wednesday. The survey of U.S. business conditions found that the bulk of the Fed’s 12 regions reported modest gains in economic activity in recent weeks. But two districts saw declines in activity and another two reported little or no change.

If interest rates keep climbing, it could bolster the argument for critics of the stock market, who say it has climbed too high and left prices too expensive.

Stocks that would benefit in particular from low rates helped drive the market higher Wednesday. Utility stocks tend to pay relatively big dividends, so their appeal often rises when bonds are paying less in interest and drawing fewer investors seeking income. Utilities rose 1.9% for the biggest gain among the 11 sectors that make up the S&P 500.

Tech stocks also climbed, as low interest rates help make investors more willing to pay high prices for their expected growth. Within the group, Intel jumped 7% after it said industry veteran Pat Gelsinger will take over as CEO next month. It also said it expects to report revenue and profit for the latest quarter above its prior forecast.

On the losing end were some of the market’s biggest winners recently, which have climbed with expectations for a stronger economy and higher rates. Raw-material producers in the S&P 500 fell 1.1%, while industrial stocks fell 0.6% and financial stocks lost 0.9%.

Stocks of smaller companies also pulled back from their big recent rally. The Russell 2000 index of small-cap stocks slid 15.99 points, or 0.8%, to 2,111.97. It remains 6.9% higher for 2021 so far. That towers over the 1.4% rise for the big stocks in the S&P 500.

Other risks are also hanging over the market, headlined by the worsening pandemic. Accelerating coronavirus counts and hospitalizations are doing more damage to the economy, and U.S. employers cut more jobs last month than they added for the first time since the spring.

Political uncertainty continues to engulf Washington. A majority of lawmakers in the House of Representatives voted Wednesday to impeach President Donald Trump for incitement of insurrection. Democrats and even some Republicans concluded that Trump incited an insurrection after he encouraged a mob of loyalists who went on to storm the Capitol last week. The voting concluded after the close of regular trading.

Investors have been looking past such political turmoil for the most part, though, focusing instead on expectations for a stronger economy ahead.

President-elect Joe Biden is expected on Thursday to release details of his plan to support the economy. They could include bigger cash payments to most Americans.