Concerns of Rising Rates Stall Stocks

NEW YORK (AP) -- The stock market's fantastic start to 2018 stalled on Wednesday after real-estate companies and other dividend payers sank on concerns about rising interest rates.

The losses knocked indexes a bit off their record highs and provided the first minor hiccup for a market that had climbed six straight days to start the year. Stocks fell after the yield on the 10-year Treasury reached its highest level since March, but they ended up recovering most of their losses as the day progressed and rates pulled back.

The Standard & Poor's 500 index fell 3.06 points, or 0.1 percent, to 2,748.23 after being down as much as 0.6 percent in the morning. The loss snapped the index's longest winning streak to start a year since 2010.

The Dow Jones industrial average dropped 16.67, or 0.1 percent, to 25,369.13, the Nasdaq composite fell 10.01, or 0.1 percent, to 7,153.57 and the Russell 2000 index of small-cap stocks slipped 0.30 points, or less than 0.1 percent, to 1,559.80.

"Last year was an investor's dream and a nightmare" for short-term traders because of how calm and strong the market was, said Kirk Hartman, global chief investment officer for Wells Fargo Asset Management. "I think this is going to be a better year for traders because you're going to get some volatility."

That's in part because he expects interest rates to climb as the government's need to borrow rises and as the Federal Reserve increases rates and pulls back from bond purchases it made to aid the economy.

Low interest rates have been one of the main propellants for the stock market's calm rise to records. They make borrowing easier for companies and people, which greases the skids for economic growth. Low rates also make bonds less attractive, which pushes investors into stocks.

Investors have long been preparing for a gradual increase in bond yields, and Hartman said stocks can keep climbing as long as rates do rise at a measured pace. But a sudden or sharp jump in rates could easily upset markets.

The yield on the 10-year Treasury went as high as 2.59 percent in the morning before falling back to 2.55 percent, the same level it was at late Tuesday. That's up from 2.40 percent at the start of the year.

A report from Bloomberg News said that China is considering a slowdown or halt to its purchases of Treasurys, which helped push rates higher. Investors are also speculating about whether Japan's central bank will slow its bond purchases to keep rates low.

The rise in rates sent companies that pay big dividends to the biggest losses. Real estate, utility and telecom stocks tend to move in the opposite direction of interest rates because higher bond yields can lure away investors seeking income.

Real-estate stocks fell 1.5 percent for the sharpest loss of the 11 sectors in the S&P 500. Utilities lost 1.1 percent, and telecoms fell 0.9 percent.

On the opposite end were banks, which can make bigger profits from loans when interest rates rise. Financial stocks in the S&P 500 rose 0.8 percent.

United Continental jumped to the biggest gain in the S&P 500 after the airline said a key revenue trend last quarter was better than it had earlier forecast. It credited stronger demand and fares. United rose $4.60, or 6.7 percent, to $73.08.

Signet Jewelers had the largest loss of the S&P 500 after it reported weaker sales for the holiday season than a year earlier. Signet dropped $3.90, or 6.9 percent, to $52.69.

The dollar fell to 111.35 Japanese yen from 112.61 yen late Tuesday. The euro rose to $1.1957 from $1.1933, and the British pound fell to $1.3519 from $1.3534.

In the commodities markets, gold rose $5.60 to settle at $1,319.30 per ounce, silver added 3 cents to $17.04 per ounce and copper gained 2 cents to $3.24 per pound.

Benchmark U.S. crude added 61 cents to settle at $63.57 per barrel. Brent crude, the international standard, gained 38 cents to $69.20 a barrel.

In overseas stock markets, Japan's Nikkei 225 index fell 0.3 percent, South Korea's Kospi lost 0.4 percent and the Hang Seng in Hong Kong added 0.2 percent.

France's CAC 40 fell 0.3 percent, the FTSE 100 in London added 0.2 percent and Germany's DAX lost 0.8 percent.