By Will Horner
U.S. stocks fell Wednesday as investors weighed signs of an improving economy against concerns about lofty stock valuations and rising inflation expectations.
The Dow Jones Industrial Average slipped about 80 points, or 0.3%, in recent trading, one day after closing at a record. The S&P 500 lost 0.7%, while the Nasdaq Composite tumbled 1.6%.
The U.S. stock market's recent rally, which has launched major indexes to a series of record closes this year, has showed signs of cooling this week, even as new economic data has provided reason for optimism. On Wednesday, the latest retail sales report showed that U.S. shoppers sharply increased their spending in January after three months of decline during the holidays.
Even so, a rise in government-bond yields has caused some investors to reassess their appetite for more risky investments, particularly given the high valuations for many stocks, said Derek Halpenny, head of market research at MUFG Bank. Low bond yields had helped fuel interest in equity markets in recent months, he said.
The yield on the 10-year Treasury note fell to 1.281% from 1.298% on Tuesday.
The climb in yields "has gone a bit further than what the market was expecting," Mr. Halpenny said. "You get to a level where the relative risk-reward becomes slightly less attractive for equities than what you were anticipating, and that can lead to some pause and some repositioning."
Some investors say they remain optimistic. Money managers are focused on fresh stimulus from President Biden's administration and measures to contain the coronavirus pandemic.
"The vaccine rollout is picking up pace, Covid cases are going down, and at the same time, you have the administration going full throttle toward a massive relief package that will come very close to President Biden's $1.9 trillion figure," said David Donabedian, chief investment officer at CIBC Private Wealth Management.
Verizon Communications rose 4.3% and Chevron gained 1.6% after Warren Buffett's Berkshire Hathaway said it had bought large stakes in both companies.
Minutes from the Fed's last rate-setting meeting are scheduled to be released at 2 p.m. ET. Investors will be scrutinizing the minutes for cues on policy makers' view of the economy and monetary policy.
"The tone from that meeting was quite comforting for markets: they said there wasn't a change in policy coming anytime soon, which is exactly what the market wants to hear," said Hugh Gimber, a strategist at J.P. Morgan Asset Management. "Investors will be looking for a reiteration of the cautiousness that was struck at that meeting."
Corporate earnings season is set to continue, with Pioneer Natural Resources and Chinese tech giant Baidu scheduled to release earnings after markets close.
Strong earnings reports have been a bright spot for investors, helping justify high valuations for stocks, said Dorian Carrell, a portfolio manager at Schroders.
"We are into an earnings recovery at the moment and -- providing there isn't a hiccup with the vaccinations -- the U.S. will continue to do well," said Mr. Carrell.
In commodity markets, Brent crude, the international benchmark for energy markets, rose about 0.4%. Gold prices fell 1.4%.
Overseas, the pan-continental Stoxx Europe 600 edged down 0.7%.
In Asia, the major indexes ended on a mixed note. Japan's Nikkei 225 fell 0.6%. Hong Kong's Hang Seng Index rose 1.1%. Markets in mainland China remained closed for the Lunar New Year holiday.
-- Caitlin McCabe contributed to this article.
Write to Will Horner at William.Horner@wsj.com
(END) Dow Jones Newswires
02-17-21 1158ET
