U.S. Stocks Open Lower Ahead of Fed Minutes
Rise in government-bond yields has caused some investors to reassess their appetite for more risky investments
By Updated Feb. 17, 2021 9:36 am ET
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U.S. stocks declined Wednesday, ahead of the release of notes from Federal Reserve policy makers’ latest meeting.
The Dow Jones Industrial Average fell 140 points, or 0.4%, shortly after the opening bell. The blue-chips index on Tuesday closed at a record. The S&P 500 dropped 0.6% and the Nasdaq Composite declined 1.1%.
Stocks have been muted in recent days after a rally that saw the major indexes notch record highs.
Fresh data on Wednesday showed that U.S. retail sales climbed more than expected in January, driven in part by the latest round of stimulus checks and declining Covid-19 infection numbers. That marked a turnaround from three consecutive months of declining sales during the 2020 holiday shopping season.
A rise in government-bond yields has caused some investors to reassess their appetite for more risky investments, particularly given the high valuations for many stocks, said Derek Halpenny, head of market research at MUFG Bank. Low bond yields had helped fuel interest in equity markets in recent months, he said.
The yield on the 10-year Treasury note ticked up to 1.301%, from 1.298% on Tuesday.
The climb in yields “has gone a bit further than what the market was expecting,” Mr. Halpenny said. “You get to a level where the relative risk-reward becomes slightly less attractive for equities than what you were anticipating, and that can lead to some pause and some repositioning.”
Some investors say they remain optimistic. Money managers are focused on fresh stimulus from President Biden’s administration and measures to contain the coronavirus pandemic.
“The vaccine rollout is picking up pace, Covid cases are going down, and at the same time, you have the administration going full throttle toward a massive relief package that will come very close to President Biden’s $1.9 trillion figure,” said David Donabedian, chief investment officer at CIBC Private Wealth Management.
Verizon Communications shares rose over 3% and Chevron gained 1.6% after Warren Buffett’s Berkshire Hathaway said it had bought large stakes in both companies.
Minutes from the Fed’s last rate-setting meeting are scheduled to be released at 2 p.m. ET. Investors will be scrutinizing the minutes for cues on policy makers’ view of the economy and monetary policy.
“The tone from that meeting was quite comforting for markets: they said there wasn’t a change in policy coming anytime soon, which is exactly what the market wants to hear,” said Hugh Gimber, a strategist at J.P. Morgan Asset Management. “Investors will be looking for a reiteration of the cautiousness that was struck at that meeting.”
Corporate earnings season is set to continue, with Pioneer Natural Resources and Chinese tech giant Baidu are set to release earnings after markets close.
U.S. retail sales climbed more than expected in January.
Photo: angela weiss/Agence France-Presse/Getty Images
Strong earnings reports have been a bright spot for investors, helping justify high valuations for stocks, said Dorian Carrell, a portfolio manager at Schroders.
“We are into an earnings recovery at the moment and—providing there isn’t a hiccup with the vaccinations—the U.S. will continue to do well,” said Mr. Carrell.
In commodity markets, Brent crude, the international benchmark for energy markets, rose 1.3%. Gold prices fell 1.2%.
Overseas, the pan-continental Stoxx Europe 600 edged down 0.4%.
Among individual stocks, luxury retailer Kering fell after it said profit dropped last year, led by poor performance at its Gucci brand. Rio Tinto shares climbed after the world’s second-biggest mining company by market value unveiled a surprise special dividend and a 22% rise in annual net profit.
In Asia, the major indexes ended on a mixed note. Japan’s Nikkei 225 fell 0.6% by the close of trading. Hong Kong’s Hang Seng Index rose 1.1%. Markets in mainland China remained closed for the Lunar New Year holiday.
Corrections & Amplifications
Hilton Worldwide was scheduled to release its earnings ahead of the opening bell. An earlier version of this article incorrectly referred to the company by its former name, Hilton Hotels. (Corrected on Feb. 17)