By Christopher Whittall and Aaron Kuriloff
U.S. stocks swung between slight gains and losses Thursday as a
selloff in government bonds kept investors on edge.
While reports from roughly half of the S&P 500 suggest
earnings may grow after five quarters of declines, reduced
expectations for central-bank stimulus spurred selling in
government debt and yield-sensitive sectors of the stock market
such as real estate and utilities.
The Dow Jones Industrial Average gained 15 points, or 0.1%, to
18215. The S&P 500 was flat, and the Nasdaq Composite lost
0.3%.
European stocks and bonds initially fell in tandem following the
release of data showing the U.K. economy grew at a
faster-than-expected rate in the third quarter. The stronger growth
figures caused investors to scale back expectations for further
central bank easing measures, which have helped prop up financial
markets in recent months.
The Stoxx Europe 600 finished little changed, while U.K.
government bonds were at the forefront of the bond selling. The
yield on the benchmark 10-year note rose to around 1.249% from
1.162% Wednesday, according to Tradeweb.
Preliminary data showed a 0.5% quarterly increase in U.K. gross
domestic product in the third quarter, which was above analyst
expectations. The pound fell 0.5% against the dollar to $1.2170,
according to FactSet.
Some investors have hoped the Bank of England would further ease
policy to boost the U.K. economy after announcing a wide-ranging
stimulus package in August, which included restarting its
quantitative-easing bond-buying.
European government bonds fell across the board, along with U.S.
Treasurys. The yield on 10-year German bonds was 0.171%, compared
with 0.094% Wednesday. The 10-year U.S. Treasury note was yielding
1.852%, up from 1.790% Wednesday.
Nick Gartside, international chief investment officer of global
fixed income at J.P. Morgan Asset Management, said stronger growth
figures, a rise in inflation with higher commodity prices, and
rhetoric from central bankers suggesting they may do less in the
future had combined to fuel the recent rise in bond yields.
"One of the things that has helped support any kind of asset has
been ultra accommodative central bank policy," said Mr. Gartside.
"That is why a few markets are a little foggy, including bond
markets."
Still, Mr. Gartside said the move higher in bond yields is a
"correction rather than a reversal," adding he would use any
selloff in bonds "to reload."
"It's starting to look like markets want to challenge the
concept of the 'forever QE' policy," said Carl Hammer, chief
currency strategist at Swedish lender SEB.
Real-estate stocks in the S&P 500, which tend to do better
when bond yields are low and investors want dividends and income,
declined 2.1%, while utilities shares lost 0.5%.
Investors were also analyzing a fresh set of corporate earnings,
hoping to avoid a sixth consecutive quarter of declines from the
year-earlier period for the S&P 500, the longest such stretch
in FactSet records going back to 2008.
Shares in Ford Motor fell 1.4% after the auto maker reported a
drop in earnings. Shares in Dow Chemical rose 2.1% after the
company said revenue rose in the latest quarter.
Twitter reported another quarter of slowing revenue growth and
said it would cut 9% of its global workforce. Shares rose 2.3%.
Google parent Alphabet and Amazon.com Inc. are due to report
earnings after the close.
Shares in Qualcomm added 4.6% after the company, which is best
known for designing smartphone chips, agreed to buy NXP
Semiconductors for $39 billion.
Shares in Deutsche Bank rose 0.6% in Europe after the embattled
German lender posted an unexpected profit and set aside more cash
to cover litigation costs. Shares in Barclays gained 4.8% after the
lender reported roughly flat net profits in the third quarter
compared with the previous year as well as a sharp bump in
fixed-income revenue.
"Earnings season [is] in full flow and the numbers are not that
bad," said Jeroen Blokland, a senior portfolio manager at asset
manager Robeco. Mr. Blokland said he may well close an underweight
position in U.S. stocks if earnings continue to improve.
Hong Kong's Hang Seng Index declined 0.8% as data showing a
slowdown in Chinese industrial profit growth in September from the
previous month weighed on sentiment.
Australia's S&P ASX 200 closed down 1.2.%, while Japan's
Nikkei Stock Average ended 0.3% lower.
The WSJ Dollar Index, which measures the dollar against a basket
of major currencies, rose 0.4%. The index is up nearly 3% in
October as expectations of a Federal Reserve rate increase in
December have grown.
U.S. crude oil prices gained 1.4% to $49.85 a barrel.
Write to Christopher Whittall at christopher.whittall@wsj.com
and Aaron Kuriloff at aaron.kuriloff@wsj.com
(END) Dow Jones Newswires
October 27, 2016 14:02 ET (18:02 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.