U.S. stocks drop from record highs as U.S. dollar strengthens

U.S. stocks fell for the first time in five sessions as investors started the week in a cautious mood with equity prices near all-time highs.

The S&P 500 was led lower by the real estate and communication services sectors, while energy companies were the biggest gainers in the benchmark index. Eli Lilly & Co. lifted heath-care shares. The dollar strengthened against all its major peers, with demand supported by elevated Treasury yields.

Weighing on the minds of investors are worries that equities are running too hot and valuations are stretched at a time when major parts of the world are grappling with the worst of the pandemic.

“Keep in mind though, after big runs like we saw last week, it’s natural for the market to take a breather,” said Chris Larkin, managing director of trading and investing product at E*Trade Financial. “Traders looking for new opportunities may be wise to look beyond behemoth tech stocks.”

Benchmark Treasury yields topped 1 per cent last week on bets that Democratic lawmakers will enact big spending packages to drive the economic recovery out the pandemic. The move reset expectations for a range of asset classes and sparked debate over whether higher yields might jeopardize the current environment of easy financial conditions.

Ten-year U.S. yields climbed to 1.13 per cent on Monday, the highest level since March.

“Ultimately it goes back to the 10- year,” wrote KC Rajkumar and Jahanara Nissar of Lynx Equity Strategies. A higher yield “points to higher inflation down the road -- which is negative for stocks. We are not there yet, but as the 10-year inches higher -- the closer we get.”

Twitter Inc. fell after the social media platform permanently banned President Donald Trump after a mob invaded the Capitol building last week. Mirabaud Securities analyst Neil Campling said the ban shows the company is making editorial decisions, and opens the door to more regulation of social media under the next administration.

Shares of Facebook Inc., which also suspended Trump’s account, also declined. Meanwhile, House Democrats Monday introduced a resolution to impeach Trump for a second time, setting up a vote this week unless Vice President Mike Pence uses his constitutional authority to remove the president.

Bitcoin tumbled, with prices sliding as much as 20 per cent on Monday. Some investors have said the digital currency’s recent gains defy logic and the U.K.’s financial watchdog issued a statement that consumers in crypto should be prepared to lose all their money. The token traded down 13 per cent at US$33,160.

Elsewhere in markets, the MSCI Asia Pacific Index slipped. Commodities were broadly lower on the back of the stronger dollar, with West Texas Intermediate oil trading near US$52 a barrel.

Here are some key events coming up:

• JPMorgan Chase & Co., Citigroup Inc. and Wells Fargo & Co., as well as firms ranging from Taiwan Semiconductor Manufacturing Co. to Infosys Ltd., are among those due to report earnings.
• EIA crude oil inventory report is due Wednesday.
• European Central Bank’s Christine Lagarde speaks at an online conference Wednesday.
• U.S. consumer-price inflation figures are due Wednesday.
• Biden plans to lay out proposals for fiscal support on Thursday.
• Fed Chair Jerome Powell takes part in a webinar on Thursday.
• U.S. initial jobless claims data are due Thursday.
• U.S. retail sales, industrial production, business inventories and consumer sentiment figures are due Friday.

These are some of the main moves in markets:

Stocks

• The S&P 500 Index declined 0.5 per cent to 3,806 as of 3:02 p.m. New York time, the first retreat in a week.
• The Dow Jones Industrial Average dipped 0.1 per cent, the first retreat in a week.
• The Nasdaq Composite Index declined 1 per cent, the largest drop in a week.
• The Stoxx Europe 600 Index sank 0.7 per cent to 408.41, the biggest dip in three weeks.
• The MSCI All-Country World Index sank 0.7 per cent to 658.99, the first retreat in a week and the largest decrease in three weeks.

Currencies

• The Bloomberg Dollar Spot Index rose 0.4 per cent to 1,126.16, the highest in two weeks.
• The euro decreased 0.4 per cent to US$1.2167, the weakest in almost three weeks.
• The British pound declined 0.3 per cent to US$1.3532, the weakest in almost two weeks.
• The Japanese yen depreciated 0.2 per cent to 104.13 per dollar, the weakest in more than a month.

Bonds

• The yield on 10-year Treasuries gained two basis points to 1.13 per cent, reaching the highest in about 10 months on its seventh straight advance.
• Germany’s 10-year yield gained two basis points to -0.50 per cent, the highest in two months.
• Britain’s 10-year yield gained 31 basis points to 0.309 per cent, its fifth straight advance and the biggest advance on record.

Commodities

• West Texas Intermediate crude dipped 0.3 per cent to US$52.07 a barrel, the first retreat in a week.
• Copper declined 3.2 per cent to US$3.56 a pound, the lowest in a week.

--With assistance from Claire Ballentine.