By Anna Hirtenstein 

U.S. stocks edged lower Thursday as a flurry of data showed that the economy is continuing to slowly recover.

The S&P 500 ticked down 0.3%, and the Nasdaq Composite retreated 0.6%. The Dow Jones Industrial Average dropped 0.1% after Wednesday's all-time high.

Fresh data on Thursday showed that weekly jobless claims fell to 730,000 for the week ended Feb. 20, a decline from the previous week and less than what economists expected. The U.S. economy grew in the fourth quarter at an annualized rate of 4.1%. New durable goods rose 3.4% in January for the ninth straight month as manufacturing continued to rebound.

Investors' appetite for risky assets had rebounded Wednesday on Federal Reserve Chairman Jerome Powell's comments that the central bank will keep interest rates low for a while.

Still, the recent sharp rise in bond yields -- which closed Wednesday at their highest level in a year -- has been making some money managers more cautious. Those investors are weighing shifting funds into less risky assets, such as bonds, and into stocks with lower valuations than technology companies.

"The market is jittery. The bond yields' rising is putting equities, especially growth stocks, under pressure," said Sebastien Galy, a macro strategist at Nordea Asset Management. "There is a bit of a risk reduction broadly," he added.

Optimism about the economic recovery is prompting investors to shift funds into stocks that are likely to benefit from a rebound this year. That is weighing on technology shares, which powered much of last year's rally.

"The rise in bond yields triggers this rotation, away from growth stocks and more in favor of value stocks," said Sophie Chardon, cross asset strategist at Lombard Odier. "The rise in yields is supportive for banks, higher oil prices are supportive for energy. It is a change of leadership."

The yield on the benchmark 10-year Treasury note ticked up to 1.460%, from 1.388% on Wednesday. The yield on government bonds has been on the rise as investors cut their holdings of the safest assets.

Investors are also closely watching for signs of inflation jumping following large doses of monetary and fiscal stimulus. At the same time, markets have also turned cautious as recent economic data showed that the rebound is likely to be slow and halting.

The earnings season is winding down: Airbnb, Beyond Meat, DoorDash and Salesforce.com are scheduled to release their results on Thursday.

Stocks popular with Reddit users on the WallStreetBets forum soared in the last hour of trading on Wednesday, in volatility reminiscent of activity seen last month. In premarket trading, GameStop climbed 55% and AMC Entertainment rose 11%.

The moves show "there is still liquidity and a lot of access to speculative bets," said Ms. Chardon. "We have to be prepared to live with this kind of targeted bubble, but I wouldn't see it as a threat to the global equity market."

Ahead of the market open, Moderna gained over 3% after it announced a plan to increase its manufacturing capacity of Covid-19 vaccines. Best Buy tumbled 5.4% after it said it anticipates a slowdown in sales growth in 2021.

Oil prices continued to tick up, with Brent crude rising for the fourth day. The international gauge for oil added 0.5% to $66.51 a barrel, near its highest level since January 2020.

Overseas, the pan-continental Stoxx Europe 600 edged down 0.1%.

Among individual equities, beer maker Anheuser-Busch InBev fell almost 5% after its fourth-quarter profit came in below estimates. British packaging company DS Smith jumped over 6% on reports that rival Mondi is exploring a takeover.

Investors have also been selling European government bonds in recent weeks as they look for higher returns. The yield on French 10-year bonds, which moves inversely to the price, ticked up above zero for the first time since June and reached as high as 0.024%.

In Asia, most major benchmarks finished the day up. The Shanghai Composite Index added 0.6% and Hong Kong's Hang Seng Index climbed 1.2%. South Korea's Kospi Index rallied 3.5% after its central bank kept interest rates at historic lows.

Write to Anna Hirtenstein at anna.hirtenstein@wsj.com

(END) Dow Jones Newswires

February 25, 2021 09:50 ET (14:50 GMT)

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