By Will Horner and Caitlin McCabe
The Nasdaq Composite tumbled Wednesday as investors retreated from many of the technology companies that have powered markets higher this year.
The technology-heavy index fell 82 points, or 0.6%, to 13965.49, dragged down by heavy-hitters including Apple and Netflix. The S&P 500 also slid, losing 1.26 points, or less than 0.1%, to close at 3931.33.
The Dow Jones Industrial Average, meanwhile, finished the day higher, rising 90.27 points, or 0.3%, to settle at 31613.02 -- the index's ninth record of the year. Earlier in the day, the blue-chip index fell nearly 184 points, before reversing course.
The U.S. stock market's recent rally has showed signs of cooling this week, even as investors point to reasons for optimism ahead. Investors say they are keeping a close watch on the possibility for more fiscal stimulus out of Washington, as well as the potential for a speedier Covid-19 vaccine rollout.
Fresh data has also shown encouraging signs that the U.S. economy is improving. On Wednesday, the latest retail sales report revealed that U.S. shoppers sharply increased their spending in January after three months of decline during the holidays.
Still, those signs of progress weren't enough to assuage investors who remain concerned about lofty stock valuations. Rising inflation expectations have also recently weighed on investors, too, as many begin to price in the consequences of more stimulus and spending.
"We're in the early stages of a business and market cycle, and so the worry is whether it's possible that it's getting too hot too quickly and whether the [Federal Reserve] will make a move," said Brian Levitt, global market strategist at Invesco. "I think that's a concern that's wildly overstated."
Investors have been keeping close watch of the yield on the 10-year U.S. Treasury note, which has continued to drift higher after starting the year closing below 1%. The yield on the benchmark note settled Wednesday at 1.297% after climbing earlier in the day. On Tuesday, it settled at 1.298%.
Yields remain significantly higher than they were just a few sessions ago, which may be causing some investors to reassess their appetite for more risky investments, 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 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."
Still, some investors and analysts say they remain optimistic that stocks will continue to outperform this year, especially amid expectations that monetary policy will continue to support markets and the economy. Last week, Fed Chairman Jerome Powell said that the central bank is unlikely to "even think about withdrawing policy support" by raising rates or reducing bond purchases in the foreseeable future.
That sentiment was echoed in the minutes of the Fed's Jan. 26-27 meeting, released Wednesday afternoon. At the meeting, Fed officials agreed to hold interest rates near zero and to continue the central bank's monthly purchases of Treasury bonds and mortgage-backed securities. And though some Fed officials said they believed inflation could pick up in the months ahead, they were skeptical that price pressures would be persistent enough to require a tightening of monetary policy, according to the minutes.
Among individual stocks, Verizon Communications rose 5.2%, or $2.84, to $56.99 to post the largest gain of the Dow's components. Chevron followed, rising 3%, or $2.79, to $95.92. Both stocks surged after Warren Buffett's Berkshire Hathaway said it had bought large stakes in both companies.
Broadly, cyclical sectors emerged as leaders for the day, with the S&P 500's energy sector outpacing all other groups in the index. That sector rose 1.5%.
In contrast, many megacap technology companies lost steam. Apple fell $2.35, or 1.8%, to close at $130.84. Netflix lost $5.94, or 1.1%, to finish at $551.34. And Facebook fell 40 cents, or 0.2%, to end at $273.57.
In the days ahead, investors will be watching corporate earnings, with companies including Walmart and Marriott International set to report Thursday.
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, natural-gas prices gained 2.9% to rise for three consecutive sessions. Winter storms across the U.S. have juiced momentum in energy markets.
Meanwhile, gold prices fell 1.5% to close lower for a fourth consecutive session.
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.
Write to Will Horner at William.Horner@wsj.com and Caitlin McCabe at caitlin.mccabe@wsj.com
(END) Dow Jones Newswires
02-17-21 1712ET
