By Riva Gold and Akane Otani
Financial and industrial shares fell while dividend stocks rose, as investors pulled back from some of the most popular post-election trades Tuesday.
In recent sessions, investors have sold bond-like stocks such as utilities and snapped up stocks of banks and infrastructure companies, expecting that President-elect Donald Trump would increase fiscal spending, lower corporate taxes and ultimately boost growth and inflation.
On Tuesday, the "reflation trade" showed signs of slowing. Financial stocks, which have rallied since Election Day as investors bet on looser regulations and higher interest rates, lost 0.5% in the S&P 500.
Investors also shed industrials, which had been lifted by expectations of a ramp-up in infrastructure spending.
The Dow Jones Industrial Average fell 8 points, or less than 0.1%, to 18860, on track for its first daily decline since Nov. 4. The blue-chip index has gained nearly 3% since the election.
Meanwhile, dividend stocks rallied, with the S&P 500 utilities sector rising 1.4% after four sessions of losses.
"There's a feeling in the markets that we may have gone a bit too far too fast and abandoned all these growth companies and bonds way too quickly," said Tim Courtney, chief investment officer of Exencial Wealth Advisors. "Today the markets are taking a bit of a breather."
The S&P 500 rose 0.5%. The Nasdaq Composite, lifted by a rebound in tech stocks, added 1%.
A post-election selloff in long-term government bonds slowed earlier Tuesday, before picking up again. The yield on the 10-year U.S. Treasury note was recently at 2.238%, according to Tradeweb, compared with 2.224% on Monday, after its largest five-day gain since 2009. Yields move inversely to prices.
Short-term debt fell after data from the Commerce Department showed a rise in October retail sales. The yield on the two-year U.S. Treasury note rose above 1%, a fresh 10-month high, up from 0.988% Monday. A stronger economy bolsters the case for the Federal Reserve to raise rates, which makes government bonds less appealing to hold.
"Attention at the moment is on the bond market, which is driving everything," said Stephen Gallo, strategist at BMO Capital Markets, who said he expects the direction of yields and the dollar to remain higher in the coming weeks.
Much of this will depend on the Fed's stance in December. Richmond Fed President Jeffrey Lacker said Monday that possible fiscal stimulus under the incoming administration could cause the U.S. central bank to raise interest rates faster than anticipated.
The WSJ Dollar Index, which measures the dollar against a basket of 16 currencies, inched up less than 0.1%, on course for a seventh session of gains.
In commodity markets, oil prices began to reverse recent losses as traders positioned for a meeting of the Organization of the Petroleum Exporting Countries at the end of the month, where members are set to discuss a proposed production cut. U.S. crude oil rose 4.9% to $45.43 a barrel, on track for its best day since September.
Energy stocks rallied. Chesapeake Energy rose 11%, Murphy Oil rose 7.6% and Apache gained 6.6%.
Elsewhere, the Stoxx Europe 600 rose 0.3% following a subdued session in Asia. The Shanghai Composite Index and Japan's Nikkei Stock Average ended with small losses after three sessions of gains, while Hong Kong's Hang Seng rebounded 0.5%.
Here are the biggest point contributors to the Dow industrials' rally from the close on Election Day through Monday:
-- Goldman Sachs Group (+186.69 points)
-- Caterpillar (+64.99)
-- J.P. Morgan Chase & Co. (+64.92)
-- UnitedHealth Group (+62.24)
-- Boeing (+53.35)
Write to Riva Gold at firstname.lastname@example.org and Akane Otani at email@example.com
(END) Dow Jones Newswires
November 15, 2016 15:09 ET (20:09 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.