Bond yields rise; stocks climb again to new records

Stocks and bond yields punched higher Wednesday, and U.S. indexes set records again, after more encouraging news on the nation’s economy.

The Standard & Poor's 500 index rose 11.67 points, or 0.5%, to 2,349.25. It's the seventh straight gain for the index and its longest winning streak in 3½ years. The Dow Jones industrial average rose 107.45 points, or 0.5%, to 20,611.86. The Nasdaq composite index rose 36.87, or 0.6%, to 5,819.44. Seven stocks rose on the New York Stock Exchange for every five that fell.

It's a striking reversal for the market compared with a year ago, when stocks around the world were tumbling on worries that another recession was on the way. Since then, the economy and job market have continued to improve, along with corporate profits. And the market got a jolt of adrenaline in November, when President Trump's surprise victory in the election raised hopes for tax cuts and other business-friendly policies from Washington.

The S&P 500 is up nearly 26% over the last 12 months, with more than half of the gain coming since the election. Such a performance would rank among the best calendar years the index has had in the last three decades.

On Wednesday, reports showed that retailers had stronger sales in January than economists expected, and inflation at the consumer level was the highest in years. Consumer prices rose 2.5% in January from a year earlier, the highest rate since March 2012. The data give the Federal Reserve more encouragement to raise interest rates, and economists said the possibility is increasing that it will happen at the central bank's next meeting in March.

Fed chief Janet Yellen indicated in testimony before a congressional committee that the central bank probably will accelerate its pace of increases if the job market remains healthy and inflation keeps climbing. The Fed has raised rates just twice in the last two years, after holding rates near zero since late 2008 to help lift the economy out of the Great Recession.

Read more: Yellen resists House GOP's push to stop global regulatory talks until Trump fills Fed vacancies »

“What really stuck out to me in Yellen's testimony was her adding emphasis to the idea that as things currently stand, even without fiscal stimulus, it would be prudent to hike sooner rather than later,” said Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management. “So if we do see tax cuts or infrastructure spending, they may need to quicken the pace of rate hikes. The bond market has clearly gotten the message.”

Treasury yields jumped as investors sold off bonds. The 10-year Treasury yield rose to 2.50% from Tuesday’s 2.47%. The 30-year yield rose to 3.08% from 3.06%.

When bonds pay more in interest, it can mean less demand from income investors for stocks that pay big dividends. Utility stocks in the S&P 500, which are some of the biggest dividend payers, fell 0.4%.

Airline stocks cruised higher after Warren Buffett's Berkshire Hathaway disclosed that it added to its investments in several of them. Southwest Airlines rose 3.6% to $57.29, United Continental rose 2.7% to $75.75, Delta Air Lines rose 2.6% to $51.17, and American Airlines rose 2.1% to $47.54.

Procter & Gamble climbed 3.7% to $91.12 after activist investor Nelson Peltz's Trian Fund Management disclosed in a regulatory filing that it owns a stake in the company.

American International Group sank 9% to $60.85, the biggest loss in the S&P 500, after reporting a larger operating loss for the fourth quarter than analysts expected.

Fossil Group plunged 14.8% to $19.48. The watch and accessories company gave a profit forecast for 2017 that fell well short of analysts' predictions, and it said it may lose money.

In Europe, the German DAX index rose 0.2%, while the French CAC 40 rose 0.6% and Britain’s FTSE 100 added 0.5%. In Asia, Japan's Nikkei 225 index rose 1%, Hong Kong's Hang Seng rose 1.2% and South Korea’s Kospi gained 0.4%.

The dollar ticked up to 114.26 Japanese yen from 114.22 yen. The euro rose to $1.0591 from $1.0572, and the British pound slipped to $1.2445 from $1.2465.

Benchmark U.S. crude fell 9 cents to $53.11 a barrel. Brent crude, the international standard, fell 22 cents to $55.75 a barrel. Natural gas rose 2 cents to $2.93 per 1,000 cubic feet, heating oil fell a fraction of a penny to $1.63 a gallon and wholesale gasoline was flat at $1.55 a gallon.

Gold rose $7.70 to $1,233.10 an ounce. Silver rose 7 cents to $17.96 an ounce. Copper was flat at $2.74 a pound. 

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UPDATES:

2:05 p.m.: This article was updated with closing prices, context and analyst comment.

8:40 a.m.: This article was updated with market prices and context.

This article was originally published at 7 a.m.

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