ARBB Arbuthnot Banking Group Plc

By Anna Hirtenstein and Paul Vigna 

U.S. stocks pared their early gains Thursday as bond yields inched higher, weighing on technology and other growth stocks.

The Dow Jones Industrial Average and the S&P 500 added 0.1%, while the Nasdaq Composite fell 0.4%. At the morning's highs, the S&P 500 and Nasdaq were at fresh records as investors cheered encouraging data on the economy, a strong batch of corporate earnings and the prospect of as much as $1.8 trillion in new government spending.

Investors appeared to be bothered by a jump in the yield on the U.S. 10-year Treasury note, said Art Cashin, managing director of UBS Financial Services, in a note to investors. The yield on the 10-year rose as high as 1.688%, its highest intraday level in more than two weeks, from 1.621% on Wednesday. It was most recently at 1.653%. Prices fall when yields rise.

"There is a pretty strong fundamental backdrop that is just not supportive for bonds. Growth is accelerating in most of the developed world," said Salman Baig, multiasset investment manager at Unigestion. He expects yields to keep rising in the longer term. "This environment of good growth and significant building inflationary pressures is a very negative environment for government bonds."

The rise in yields, which were as low as 0.915% at the start of the year, has curbed investor appetite for technology stocks, which often are afforded high price tags based on expectations of growth far into the future. The S&P 500's technology sector slipped 0.8%, the worst performer of the index's 11 groups.

Apart from the bond moves, the morning provided investors with fresh signs of the economy's recovery. The U.S. economy grew at a 6.4% rate in the first quarter, approaching its pre-pandemic size, and weekly jobless claims fell to their lowest level since the pandemic began last year.

The economy is getting a boost from two main sources, said Nancy Vanden Houten, the chief economist at Oxford Economics. One is the receding pandemic -- at least in the U.S. -- and the reopening of the economy, and the other is the stimulus efforts from both the federal government and Federal Reserve.

"We're on a really good path here," she said, while acknowledging a full recovery is still a long way off, a sentiment echoed by the Federal Reserve itself on Wednesday.

A fresh boost could come in the form of a new federal stimulus program. President Biden outlined proposals on Wednesday for his new American Families Plan, which would boost spending on child care, education and paid leave. Investors' optimism was also buoyed after Federal Reserve Chairman Jerome Powell said the central bank would continue supporting the economy, while noting signs that growth has revived and the labor market is strengthening.

"In this environment, it is very difficult to be bearish," said Gregory Perdon, co-chief investment officer at private bank Arbuthnot Latham.

A high level of household savings is morphing into consumer spending as the economy reopens and will also deliver a boost, he added. "I struggle to see any factor over the course of the next six months that would outweigh this ready-steady-spend narrative."

Mr. Powell on Wednesday said the recent rise in inflation largely reflected "transitory factors," and that the Fed would hold rates steady until the labor market is back to full strength and inflation has reached the central bank's goal of averaging 2%. His comments helped reassure markets that the Fed won't shift course abruptly.

"They are going to let the economy run hot," Mr. Perdon said. "The prospect of there being a tightening in the very near term is just not on the table."

Earnings season remains under way, with Amazon.com and Twitter slated to post results after market hours. In afternoon trading, Amazon fell 0.4% and Twitter dropped 2.1%.

Apple shares fell 0.7% even after reporting that quarterly profit more than doubled to a record and saying it expects the surge in sales to continue. Facebook jumped 5.4% after it reported a boom in its ad business that drove revenue and profit sharply higher.

EBay tumbled 11% after saying it expects earnings on a per-share basis for the current quarter to come in below analysts' expectations. Qualcomm rose 3.4% after reporting a jump in revenue boosted by high demand for 5G phones. Comcast gained 3.9% after it posted a 55% rise in first-quarter profit.

Fresh data Thursday showed that the U.S. economy expanded at a 6.4% annual rate in the first quarter, expanding a consumer-led rebound from the pandemic.

Initial jobless claims, a proxy for layoffs, reached 553,000 for the week ended April 24. That is the lowest level since the pandemic began more than a year ago, but was above forecasts from economists polled by The Wall Street Journal.

Overseas, the pan-continental Stoxx Europe 600 fell 0.3%.

Among European equities, Nokia rallied 8.4% after the telecommunications company's earnings beat expectations, driven by sales of 5G network equipment.

The Shanghai Composite Index advanced 0.5%, and Hong Kong's Hang Seng added 0.8%.

Write to Anna Hirtenstein at anna.hirtenstein@wsj.com and Paul Vigna at paul.vigna@wsj.com

(END) Dow Jones Newswires

April 29, 2021 12:56 ET (16:56 GMT)

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