By Jon Sindreu and Aaron Kuriloff

The postelection rally in U.S. stocks and selloff in government bonds stalled midweek.

The Dow Jones Industrial Average fell 86 points, or 0.5%, to 18838, after closing at an all-time high Tuesday for the fourth session in a row. The S&P 500 fell 0.3% while the Nasdaq Composite rose 0.3%.

Banks retraced some of their recent gains, as financial shares in the S&P 500 fell 1.6%. Lenders were among the main companies swept up in investors' surge of enthusiasm for the prospect of expansive fiscal spending, tax cuts and regulatory rollbacks under a Trump administration.

Health-care, materials and industrials shares also slipped Wednesday, after President-elect Donald Trump's pledges to ramp up infrastructure spending and revamp Obamacare spurred postelection gains in those sectors.

Some analysts said investors' concerns about the impact that Mr. Trump's protectionist policies could have on the global economy might damp enthusiasm for potential increased government spending.

"If this bounces the wrong way vis-à-vis trade or the wrong way vis-à-vis the deficit and debt, those could be significant hurdles, " said Erik Davidson, chief investment officer at Wells Fargo Private Bank. "But there's definitely a level of optimism I haven't seen in awhile."

U.S. government bond prices steadied, after tepid economic data reduced recent selling. The yield on the benchmark 10-year U.S. Treasury note was 2.235%, according to Tradeweb, compared with 2.240% Tuesday.

Yields began to decline as prices rose Wednesday after the Labor Department said U.S. business prices stayed flat in October, signaling muted inflation pressures that contrasted with expectations for an increase next year.

The expectation that inflation will pick up under a Trump administration has hurt bonds, because it means central banks may need to start reversing years of ultraloose policies. Inflation also erodes the fixed return on bonds.

Steeper yield curves have also provided a helping hand to banks, whose business model is based on borrowing short term and lending long term. Meanwhile, stocks considered as safer bond proxies because of their steady income, such as utilities, are down since the election.

One question for investors now is whether the recent bond selloff will resume before more concrete details about Mr. Trump's policies emerge.

"Our view is that rates have room to go higher," said Annika Eiremo, a fund manager at Janus Capital Group Inc., a company with $195 billion under management. Still, "it's still early stages of a very uncertain time period in terms of what policy will be," she said.

Financial markets' optimistic reaction to the outcome of the election seems to clear the way for the U.S. Federal Reserve to nudge up interest rates in its long-awaited December policy meeting. Federal funds futures, used by traders to bet on central bank moves, on Wednesday showed a 91% chance of a rate rise in December, according to CME Group.

Signs of earnings growth in the third quarter reinforces the case for tighter monetary policy, investors say.

"I think markets are putting the Fed in a place where it has to raise [interest rates]," said Jamie Cox, managing director for Virginia-based Harris Financial Group. "The Fed would probably prefer not to, but it has no choice with fiscal policy in the horizon."

Expectations of higher interest rates have pushed up the U.S. dollar. According to the WSJ Dollar Index, which measures it against a basket of 16 other currencies, the dollar is at its strongest levels since February.

Copper and aluminum prices, which are regarded as gauges of global economic output, fell by about 1.8% and 2% respectively Wednesday, but this was after reaching one-year highs last week. Oil prices rose, with U.S. crude up 0.1% at $45.87 a barrel.

In Europe, the Stoxx Europe 600 reversed morning gains and fell 0.2%, as banks surrendered some of last week's rally. The financial sector did boost Asian stock markets, however, with Japan's Nikkei Stock Average closing 1.1% higher.

Sam Goldfarb contributed to this article.

Write to Jon Sindreu at jon.sindreu@wsj.com and Aaron Kuriloff at aaron.kuriloff@wsj.com

(END) Dow Jones Newswires

November 16, 2016 13:24 ET (18:24 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.