US Stocks Waver on Rate Worries, Geopolitical Tensions – Wall Street Journal

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  • U.S. stocks open little changed
  • Treasury yields, dollar edge down
  • Retail stocks rise after Macy’s earnings

U.S. stocks opened little changed Wednesday, as investors weighed continued worries about tighter financial conditions and geopolitical tensions against strong earnings results from Macy’s.

The Dow Jones Industrial Averaged inched up 5 points, or less than 0.1%, to 24713 shortly after the opening bell. The blue-chip index snapped an eight-session winning streak Tuesday and remains more than 7% off its January all-time high. The S&P 500 added 0.1%, and the Nasdaq Composite climbed 0.1%.

Anxiety over rising inflation and interest rates has hurt stocks throughout the year, and investors have refocused on those worries this week with the yield on the benchmark 10-year U.S. Treasury note hitting its highest level since 2011 Tuesday. The dollar has also climbed to fresh 2018 highs, stoking fears that it will become more expensive for foreign governments and companies to repay dollar-denominated debt.

Markets were nervous following economic data and geopolitical headlines, including fresh doubts about President Donald Trump’s planned summit with North Korea.


Photo:

Ahn Young-joon/Associated Press

Rosy retail sales data Tuesday reignited those worries, with more investors anticipating three more Federal Reserve interest-rate increases this year compared with the central bank’s previous projection of two. Higher rates tend to push up borrowing costs and Treasury yields, making stocks less attractive to some investors.

Rising expectations around the end-cycle level of Fed interest rates reflect increasing optimism about the U.S. economy, according to Kit Juckes, chief foreign exchange strategist at Société Générale. But bond yields won’t rise unimpeded, he said.

“Treasury markets will more likely want to probe the upside of what can be expected on rates until the equity market says it doesn’t like it. The last time we spiked U.S. rate expectations like this, it took over a year for the S&P to make a new high,” Mr. Juckes said.

On Wednesday, the 10-year Treasury yield edged down to 3.071%, according to Tradeweb, from 3.082%. Yields fall as bond prices rise.

The WSJ Dollar Index, which tracks the dollar against a basket of 16 other currencies, inched down less than 0.1%.

Its recent rally has pummeled emerging-market assets and commodities such as gold, which become more expensive for overseas buyers when the U.S. currency strengthens.

“The dollar’s rally probably has further to go, although it’s caught in a tug of war between a deteriorating fiscal picture in the U.S.—you have a rapidly expanding budget deficit—and a monetary policy where the Federal Reserve is continuing to tighten rates,” said

Erik Norland,

senior economist at CME Group. “By contrast, you have other central banks like the Bank of England holding rates, or the European Central Bank for whom raising rates is a distant dream.”

Some investors think stocks will still climb following their strongest earnings season in years. Macy’s shares surged 7.7% after the department store exceeded same-store sales expectations in the most recent quarter and lifted its targets for the 2018 fiscal year.

Other retailers such as Kohl’s and Nordstrom were also among the S&P 500’s best performers.

Cisco Systems is scheduled to report after the market closes Wednesday, while Walmart and J.C. Penney are on tap for early Thursday.

Analysts were also tracking the latest geopolitical news amid fresh doubts about President

Donald Trump’s

planned summit with North Korea and trade talks with China.

Elsewhere, the Stoxx Europe 600 edged up 0.2%, with the index’s basic resources and technology sectors among the best performers. Chinese tech giant Tencent Holdings released results after Asian markets closed that blew past expectations.

Italy’s main stock benchmark fell 2%, with investors spooked by the leaking of a draft proposal by two Italian antiestablishment parties that are seeking to form a governing coalition that advocates the introduction of European procedures allowing countries to quit the euro. The yield on 10-year Italian bonds was recently at 2.089%, up from roughly 1.95%.

Earlier, Japan’s Nikkei Stock Average closed down 0.4%, while the Shanghai Composite declined 0.7%.

—Amrith Ramkumar contributed to this article.

Write to David Hodari at David.Hodari@dowjones.com