One of the biggest stocks has been in the bond market, where expectations of rising federal borrowing, economic growth and inflation have pushed long-term treasury yields to their highest levels since last spring. .
The 10-year Treasury yield, however, slowed its ascent and fell to 1.10% from 1.12% on Tuesday night. Analysts said statements by two Federal Reserve officials a day earlier helped allay fears of cutting its treasury bill purchases. These purchases have helped keep rates low in hopes of stimulating financial markets and the economy.
The concerns are reminiscent of the ‘taper tantrum’ of 2013, when markets collapsed after the Fed said it expected to slow bond buying as the economy recovered.
Low rates have been one of the main foundations of the stock market boom, even though much of the economy is still struggling in the face of the worsening pandemic. The 10-year yield soared to 0.90% on Jan. 4, the day before Georgia’s run-off election, which handed control of the Senate – and therefore Washington – to the Democrats.
The Fed has had the freedom to keep short-term rates near zero in part because inflation has remained low. A report released on Wednesday showed prices at the consumer level were 1.4 percent higher in December compared to a year earlier. It was a little more than economists expected, although it remains relatively low.
The Fed will release its latest “beige book” in the afternoon, giving anecdotal evidence it hears about how businesses are doing in the country. Fed Chairman Jerome Powell will also speak at an online event hosted by Princeton University on Thursday, which may offer more clues as to the Fed’s intention.
If interest rates continue to rise, it could strengthen the argument of stock market critics, who say it has climbed too high and left prices too expensive.
Utilities rose 1.9% for the biggest gain among the 11 sectors that make up the S&P 500.
Tech stocks have also climbed, as low interest rates help make investors more willing to pay high prices for their expected growth. Within the group, Intel jumped 7.7% after announcing that industry veteran Pat Gelsinger would take over as CEO next month. He also said he plans to post revenue and profit for the last quarter above his previous forecast.
Recently, some of the biggest winners in the market have been losers, which have soared with expectations of a stronger economy and higher rates. S&P 500 commodity producers fell 1 percent, while industrial stocks fell 0.6 percent and financial stocks fell 0.1 percent.
Smaller company stocks have also retreated from their recent big rally. The Russell 2000 Small Cap Index has slipped 0.3%, although it remains 7.4% higher for 2021 so far. This exceeds the 1.6% increase in the S&P 500 headlines.
Other risks also weigh on the market, underlined by the worsening pandemic. Accelerating coronavirus numbers and hospitalizations are further hurting the economy, and U.S. employers cut more jobs last month than they added for the first time since the start of last year .
Political uncertainty continues to overwhelm Washington, meanwhile, and President Donald Trump appears to be set to be impeached a second time. Democrats and even some Republicans say Trump instigated an insurgency after cheering on a host of loyalists who continued to storm Capitol Hill last week.
However, investors have looked beyond these political turmoil for the most part, focusing instead on expectations of a stronger economy.
President-elect Joe Biden is expected to release details of his plan to support the economy on Thursday. They could include larger cash payments to most Americans.
In European stock markets, indices also made only modest movements. The German DAX returned 0.1% and the French CAC 40 added 0.2%. The FTSE 100 in London fell 0.1%.
Asian markets were mixed. Japan’s Nikkei 225 rose 1 percent and South Korea’s Kospi rose 0.7 percent. The Hong Kong Hang Seng lost 0.1% and Shanghai stocks lost 0.3%.