By Gunjan Banerji
U.S. stocks clinched fresh records and government-bond yields notched the biggest weekly gain in a month as investors grew more confident that the economic cycle isn't nearing its end.
Investors unraveled bets on traditionally safer investments like U.S. Treasurys and dove back into some of the riskier corners of the stock market in a week that was dominated by trade headlines. That propelled the yield on the 10-year Treasury note to its highest since July and all three major U.S. stock indexes to records Friday.
The moves marked a sharp shift from much of the year when investors bought both government bonds and stocks simultaneously, a signal that unease was underpinning the broader equity rally.
Some investors said they were closely watching the bond market for cues on the stock market's trajectory. The S&P 500 climbed 0.9% for the week, extending its gains for 2019 to 23%.
"I'm much more focused on bond yields," said Jason Brady, chief executive of Thornburg Investment Management. "To me, interest rates and Treasurys are leading a lot. They're leading a lot of the capital allocation. They're leading a lot of the rotation."
The yield on the 10-year Treasury note ended the week at 1.930%, its highest since July 31, before investors were spooked by a spate of weak economic data around the world.
Since then, the Federal Reserve has trimmed interest rates, and consumer spending and jobs data have elicited confidence in the strength of the U.S. economy. Corporate profits have also beaten expectations, helping temper fears of a looming downturn.
In the latest sign that investors are fleeing traditionally safer bets, the total amount of negative-yielding debt world-wide has fallen by about $4.5 billion in recent weeks -- to roughly $12.5 trillion, according to Deutsche Bank Securities, from a peak of $17 trillion in August.
A bond market signal that had previously been flashing red has eased, too, relieving some worries about a possible recession. This week shorter-dated Treasurys all yielded less than ones maturing later for the first time since November 2018.
The rise in yields helped spin a rotation in the stock market. Cyclical stocks like those of financial and energy companies led the way in the S&P 500 this week. Meanwhile, real estate and utility companies -- known for being steady dividend payers -- suffered their worst week since December 2018.
Mr. Brady said he's optimistic about the prospects for banks like JPMorgan Chase & Co. as financial companies benefit from rising yields.
The sputtering rally for bonds coincided with a fresh boost for stocks.
The Dow industrials gained 333.88 points, or 1.2%, for the week, hitting their first new highs since July 15. The S&P 500 climbed 0.9%, extending its weekly winning streak to five. The technology-heavy Nasdaq Composite rose 1.1%.
The week was marked by large moves by individual stocks and sectors as earnings results trickled in and investors evaluated their outlooks for value stocks, often defined as companies whose shares trade at a low multiple of their book value, or net worth.
Investors positioned for value strategies to regain luster in September, and some analysts say the rotation can continue, citing trade negotiations as a lingering headwind.
"The larger rotation by real money managers will likely happen only after the phase one trade deal is signed," wrote Marko Kolanovic, global head of quantitative and derivatives strategy at JPMorgan in a research note Friday.
Mr. Kolanovic said rising yields would continue to make cyclical and value stocks more attractive because they reflect an improving economic outlook.
New data Friday showed consumer confidence ticked higher in early November. The University of Michigan said Friday that its preliminary index of November consumer sentiment was 95.7, up slightly from 95.5 at the end of October. The figures came after the latest jobs report showed the U.S. economy is growing at a stable but slower rate, despite signs of a global slowdown.
"A lot of these policy risks...seem to have melted away to some extent. The worst case scenarios seem to have been priced out," said Brian Nick, chief investment strategist at Nuveen.
Still, Friday's latest trade headlines highlighted their outsize impact on stock and bond investors. President Trump said the U.S. hadn't committed to rolling back existing tariffs on Chinese goods, spooking investors a day after Beijing indicated such concessions would be part of an initial deal.
"Until we actually see some type of trade deal, the level of uncertainty -- which ultimately will translate into volatility in the market -- will persist," said Brian O'Reilly, head of investment strategy at the Dublin-based Mediolanum International Funds.
The Stoxx Europe 600 notched its fifth consecutive week of gains. In Asia, the Shanghai Composite advanced for the third straight week, while the Hang Sang finished its second week of gains.
Will Horner contributed to this article.
Write to Gunjan Banerji at Gunjan.Banerji@wsj.com