MARKET SNAPSHOT: S&P 500 Nasdaq Poised For First Down Day Of 2018 Amid Bond Jitters

By Sara Sjolin, MarketWatch , Ryan Vlastelica

10-year U.S. yields rise further above 2.5%

U.S. stocks fell on Wednesday, putting at least two major indexes on track for their first negative session of the new year after a string of all-time highs that helped the S&P 500 score its most records in a new year since 1964.

Traders were also keeping an eye on U.S. bonds, as the yield on the 10-year Treasury note moved closer to 2.60% after a report that China is considering halting purchases of U.S. debt.

What are stock indexes doing?

The Dow Jones Industrial Average fell 74 points, or 0.3%, to 25,316. The S&P 500 lost 9 points to 2,742, a decline of 0.3%. The Nasdaq Composite Index slid 45 points, or 0.6%, to 7,119. All three are coming off closing records on Tuesday (http://ift.tt/2miMNEs).

See:Jeff Gundlach predicts the stock market's 9-year winning streak will end in 2018 (http://ift.tt/2qStg2w)

With the fresh round of all-time highs, the S&P logged records for six straight sessions--or all of the 2018 trading days--tying with 1964 for the longest streak of records to begin a new year (http://ift.tt/2qobX99).

What is driving the markets?

After the record run, Wednesday's pullback was seen as merely a pause in the rally and as traders took the chance to take some profits.

Investors were, however, watching U.S. bonds as the yield on the 10-year benchmark note rose 4 basis point to 2.59% after a Bloomberg report (http://ift.tt/2D01iaA) that China is considering halting or cutting its purchases of U.S. government paper.

Yields had jumped 6.2 basis points to 2.542% (http://ift.tt/2Euz0kV) on Tuesday, its highest level since March, after the Bank of Japan cut its bond purchases, sparking chatter that the Japanese central bank is getting ready to end years of ultraloose monetary policy.

See:Relax, the Bank of Japan isn't tapering--yet! (http://ift.tt/2DgLmhi)

Rising yields can be a two-edged sword for stock markets. When the gain comes from a low base, it can signal that investors are becoming more confident about the economic outlook and therefore dumping safe-haven bonds. That fans a risk-on mood--an appetite for riskier investments--in broader markets.

Read:Here's what could trigger a 30% stock-market melt-up, says investor Bill Miller (http://ift.tt/2CMZ2PQ)

However, if yields rise too fast or too high, that move tends to weigh on the stock market, because it becomes more attractive to invest in the bond market rather than in stocks.

What are strategists saying?

"We've had quite a run, so almost anything can be a reason for a pause, but I do think backup in bond yields is impacting sentiment a bit," said David Donabedian, who oversees about $40 billion as chief investment officer of CIBC Atlantic Trust Private Wealth Management.

"The notion that China is pulling back on buying Treasuries raises a bunch of questions. If it is just diversifying its holdings, that isn't a big deal. But if China is positioning itself ahead of a policy issue that could heat up, it could be. If this is the start of a tit-for-tat over trade relations, that's a much more fundamental problems.

The prospect of higher trade protectionism in the U.S. has been routinely cited as a major potential headwind by investors this year. UBS Asset Management named trade uncertainty one of its three major risks of 2018 (http://ift.tt/2EqGlSy), while Richard Turnill, BlackRock's global chief investment strategist called it "a risk that could shake up global growth and earnings prospects--and call into question our economic outlook."

Read more:Forget North Korea, this is the biggest political risk facing stocks in 2018 (http://ift.tt/2EruBiN)

Outside of the trade issue, Donabedian said he remained optimistic about equities. "Record levels are justified given we have a solid economy and corporate earnings. Our view is markets won't see a straight ride up, but the bull market will be sustained in 2018."

What data are in focus

In the latest economic data, cost of goods imported into the U.S. rose slightly in December and finished the year with a 3% increase--the biggest gain in six years (http://ift.tt/2Di8Pyi).

Which stocks are in focus?

Shares of Eastman Kodak Co.(KODK) soared 60%, building on a 119% surge from Tuesday when the image-technology company said it is launching a cryptocurrency (http://ift.tt/2CZhZD1) and would begin a "major blockchain initiative." The stock has more than tripled thus far this week.

United Continental Holdings Inc.(UAL) rose 5.4% after the airline late Tuesday said its December traffic rose 2.7% year-over-year (http://ift.tt/2CMrIbJ).

Apple Inc. shares(AAPL) slipped 0.5% as the tech giant faced new questions from the U.S. and France (http://ift.tt/2Di8Q5k) over its battery-related performance issues on iPhones.

Lennar Corp.(LEN) was down 0.7% after the home builder reported weaker-than-expected profit (http://ift.tt/2CPGo9Y) for its fiscal fourth quarter.

Signet Jewelers Ltd.(SIG) fell 6.6%. The jewelry retailer said same-store sales in the holiday period fell 5.3%.

Whirlpool Corp.(WHR) fell 1.4% after it disclosed it will incur about $80 million in charges (http://ift.tt/2DgHFbi) as result of a restructuring of its Embraco compressor business, which is expected to cut about 500 jobs.

Domino's Pizza Inc.(DPZ) dropped 4.9% after the fast food chain late Tuesday said President and Chief Executive J. Patrick Doyle will leave the company on June 30 (http://ift.tt/2CLIqbf).

Target Corp.(TGT) was upgraded to positive from neutral (http://ift.tt/2DiEgbV) at Susquehanna Financial Group. Shares rose 1.8%.

What are other markets doing?

Stocks in Asia closed mixed (http://ift.tt/2CMWG3E), with Japan's Nikkei 225 index ending 0.3% lower.

In Europe (http://ift.tt/2DgInoU), stocks were mostly lower, as the Stoxx 600 index fell from its highest close since August 2015.

Oil prices continued to rally (http://ift.tt/2CMrJwj), sending the West Texas Intermediate February contract 1% higher to a fresh three-year high. The U.S. Energy Information Administration reported that domestic crude supplies fell by 4.9 million barrels for the week ended Jan. 5, a bigger drop than had been expected (http://ift.tt/2Dg70ly).

Gold rose 0.8%. The ICE dollar index fell 0.6% to 91.990 as the greenback tanked against the yen. The dollar bought Yen111.36, down from Yen112.65 late Tuesday in New York.

Read:Swedish krone shoots higher after Riksbank hints at rate hikes in 2018 (http://ift.tt/2CNc53S)

In cryptocurrencies, the bitcoin spot price dropped 6.6% to $13,830, while bitcoin futures lost 6.8% to $13,735. Ripple coins slumped 14% (http://ift.tt/2Dg22p0) to $1.96, according to CoinMarketCap.com data.

(END) Dow Jones Newswires

January 10, 2018 11:22 ET (16:22 GMT)

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