By Riva Gold
Investors paused for breath Thursday after U.S. stocks climbed to record levels for a third consecutive session.
Expectations for stronger U.S. economic growth and higher inflation had sent the Dow Jones Industrial Average, the S&P 500 and the Russell 2000 to fresh highs on Wednesday, while the 10-year Treasury yield settled at its highest since July 2015.
On Thursday, U.S. markets were closed for Thanksgiving, while European stocks inched up following a mixed session in Asia. The WSJ Dollar Index was little changed after touching a 14-year high.
Investors have been piling into the dollar and U.S. stocks this month, on expectations that tax cuts, infrastructure spending and less regulation will boost economic growth and ultimately corporate profits.
"The reflationary theme is sucking money back into the U.S. stock market and injecting huge shock waves through foreign exchange markets," said Jane Foley, currency strategist at Rabobank.
The latest leg higher for U.S. stocks followed strong U.S. economic data Wednesday and fresh hints the Federal Reserve would likely raise interest rates in December.
"The market is bringing us into line with what the Fed was telling us anyway," said James Athey, investment manager at Aberdeen Asset Management, referring to the pace of interest rate increases next year.
Even ahead of the election, central banks had softened their dovish stance, and murmurs about fiscal policy and infrastructure spending were starting to raise expectations for growth and inflation and weigh on the bond market.
"That narrative was nascent leading up to Trump, and he just turbocharged it," Mr. Athey said.
Overseas, the Stoxx Europe 600 index inched up 0.3% in low volume trading on Thursday, as gains in the health care and construction and materials sectors offset losses in shares of utilities companies.
European stocks have barely participated in the November rally, in part held back by domestic political risks.
"Uncertainty for the rest of the world outside the U.S. is still hanging high," said Ameet Patel, analyst at Northern Trust Capital Markets. "You have the start of the execution of Brexit, the Italian referendum and all its implications, and a pivotal election in France," he said.
The euro inched up slightly on Thursday to $1.0570 after settling at its lowest against the dollar since March 2015.
Many global investors are also concerned about the implications of Mr. Trump's trade positions.
The European Central Bank said Thursday that the currency area's economy couldbe affected by U.S. trade policy changes. Economic policies introduced by President-elect Donald Trump "will likely become more inward-oriented," the ECB wrote in its biannual Financial Stability Review.
In bond markets, the yield on the 10-year German government bond fell slightly to 0.259% from 0.277% on Wednesday. Yields move inversely to prices.
Markets in Asia mostly closed lower amid concerns that higher U.S. interest rates and a stronger dollar could hurt emerging markets and worsen capital flight from Asia.
"As money is sucked into U.S. stocks, we've seen a big selloff in many emerging market currencies and many emerging market assets," Ms. Foley said.
South Korea's KOSPI index fell 0.8%, while Hong Kong's Hang Seng Index fell 0.3%.
Japan's Nikkei Stock Average added 0.9% on Thursday, however, advancing for a sixth straight day to its highest level since January, as a weaker yen boosted shares of exporters.The yen has fallen over 7% against the dollar so far this month.
Willa Plank and Tom Fairless contributed to this article
Write to Riva Gold at email@example.com
(END) Dow Jones Newswires
November 24, 2016 12:31 ET (17:31 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.