A rally in major world stock markets stalled yesterday as investors reassessed positions after Tuesday’s US presidential election, while US bond yields continued to climb on fears of a revival in inflation resulting from potential expansionary fiscal policy under President-elect Donald Trump.
Investors have quickly shifted to a focus on Trump’s priorities, including tax cuts, an increase in defence and infrastructure spending, along with bank deregulation.
Stocks in Europe and the US reversed course and turned negative, with utilities down more than four per cent in Europe. Wall Street was pulled lower by a drop in the technology sector, which was on track for its biggest decline since June 24.
“In a higher rate environment, growth stock valuations aren’t what they were in a lower rate environment, that’s just plain and simple,” said Stephen Massocca, chief investment officer, Wedbush Equity Management LLC in San Francisco.
Banking shares in the US continued to rally and were up more than two per cent on the session, and more than 9 per cent over the past four sessions.
Stocks on Wall Street had rallied on Wednesday following Trump’s stunning win, with companies expected to benefit from his reflationary policies seeing the biggest climb, while bond proxy sectors like utilities and real estate slumped.
“I would start looking to put some money to work in some of these names, especially the ones with nine, ten per cent dividend yields,” said Mr Massocca.
The Dow Jones industrial average rose 145.15 points, or 0.78 per cent, to 18,734.84, the S&P 500 lost 0.34 points, or 0.02 per cent, to 2,162.92 and the Nasdaq Composite dropped 57.32 points, or 1.09 per cent, to 5,193.75.
The benchmark S&P index retreated after rising as much as 0.9 per cent earlier in the session.
Europe’s index of leading 300 shares was down 0.3 per cent after earlier touching a two-week high.
MSCI’s all-country world index edged up 0.05 per cent after rising as much as 0.9 per cent.
Bond yields continued their ascent, amid the expectation interest rates will rise under increased spending. Benchmark 10-year notes were last down 7/32 in price, yielding 2.087 per cent, up from 2.064 per cent late on Wednesday. The yields rose as high as 2.125 per cent, the highest since January.
The dollar also continued to strengthen and was last up 0.46 per cent at 98.959 against a basket of major currencies. The greenback was on track for its fourth session of gains.
The strength in the dollar weighed on gold which fell one per cent to $1,264.86 per ounce, on track for its third decline in four days. The dollar rise also was a drag on oil prices, with both Brent and US crude down more than one per cent.
But copper touched a 16-month high of $5,714 a tonne and was last up 3.7 per cent at $5611.50 on expectations of a jump in infrastructure spending under a Trump presidency.