Stocks fall as rally stalls, yields climb on Trump policy worry

By Chuck Mikolajczak

NEW YORK (Reuters) -A gauge of global stocks fell on Tuesday after five straight sessions of gains while the dollar hit its highest level in over four months as investors assess the impact of U.S. President-elect Donald Trump's likely policies on growth and inflation.

Investors have flocked into assets expected to benefit from Trump policies for his second term in office, after he pledged to impose high tariffs on imports from key trading partners, as well as lower taxes and loosen government regulations.

The S&P 500 has surged recently, partly driven by a jump in shares of banks, which are likely to benefit from a reduced regulatory burden. Domestically focused small-cap stocks have jumped on expectations for less competition from tariffs and lower tax rates, with the Russell 2000 vaulting to a three-year high on Monday.

Bitcoin , the world's biggest cryptocurrency, has shot up about 30% since the Nov. 5 election, rocketing toward the $90,000 mark. Trump is seen as a proponent of cryptocurrencies, promising during his campaign to make the United States the "crypto capital of the planet."

U.S. stocks have rallied since the election, with each of Wall Street's three major indexes closing at record levels on Monday.

But concerns that Trump's policies could rekindle inflation after a long battle to reduce price pressures following the COVID-19 pandemic have pushed U.S. Treasury yields and the dollar higher. Markets will get the latest inflation reading on Wednesday in the consumer price index (CPI) for October.

"The 10-year Treasury yield is kind of creating a headwind against the equity rally," said Jack Ablin, chief investment officer at Cresset Capital in Chicago. "There's sort of these conflicting signals where investors are celebrating all of these growth initiatives but the bond market is pushing back."

The Dow Jones Industrial Average fell 250.15 points, or 0.56%, to 44,042.98, the S&P 500 fell 5.53 points, or 0.09%, to 5,995.82, and the Nasdaq Composite rose 0.02 points, or 0.00%, to 19,298.79.

Shares of Home Depot (NYSE:HD ) shed 0.1%, giving up earlier gains, after the home improvement retailer reported quarterly results.

In Europe, shares closed lower, weighed down by names with a large exposure to China, with news that Trump was expected to select U.S. Senator Marco Rubio as his secretary of state. Rubio is seen as the most hawkish option on Trump's list of candidates.

MSCI's gauge of stocks across the globe fell 5.26 points, or 0.61%, to 857.84. The STOXX 600 index lost 1.98%, while Europe's broad FTSE EuroFirst 300 index closed down 40.36 points, or 1.99%, as both suffered their biggest daily percentage drops since early August.

The yield on benchmark U.S. 10-year notes rose 12.2 basis points to 4.43%, from 4.308% late on Friday; the bond market was closed on Monday for a federal holiday.

Aside from the CPI data, several Federal Reserve officials are speaking this week following the central bank's policy decision last week to cut interest rates by 25 basis points.

Richmond Fed President Thomas Barkin said that with inflation close to the Federal Reserve's 2% target, the labor market resilient and the U.S. central bank in the process of lowering borrowing costs, policymakers are ready to respond if inflation pressures rise or the job market weakens.

Minneapolis Federal Reserve Bank President Neel Kashkari said the economy is "in a good place" and he feels U.S. monetary policy is currently "modestly restrictive," with short-term borrowing costs continuing to slow inflation and the economy, but not by a lot.

The dollar index , which measures the greenback against a basket of currencies, rose 0.54% to 105.99, with the euro down 0.36% at $1.0616. The greenback has risen in four of five sessions since the election to reach 106.17, its highest level since May 1.

Against the Japanese yen, the dollar strengthened 0.66% to 154.72. Sterling fell 1.01% to $1.2739.

The dollar strengthened 0.22% to 7.243 versus the offshore Chinese yuan .



The greenback is expected to continue to strengthen against China's currency and those sensitive to its economy as a result of Trump's trade policies and because of expectations of higher U.S. Treasury yields. Markets have been scaling back expectations for more rate cuts from the Federal Reserve, currently pricing in a 58.7% chance of a 25-basis-point cut at its December meeting, down from 77.3% a week ago, according to CME's FedWatch Tool.

U.S. crude rose 0.28% to $68.23 a barrel and Brent rose to $71.99 per barrel, up 0.22% on the day, holding near a two-week low after OPEC's latest downward revision for demand growth.

Source: Investing.com