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Dow, S&P drop as financials' rally ebbs, tech boosts Nasdaq

Published 11/16/2016, 01:05 PM
© Reuters. Traders work on the floor of the NYSE

By Tanya Agrawal and Anya George Tharakan

(Reuters) - The S&P and the Dow were lower in early afternoon trading on Wednesday as a seven-day rally in financial stocks fizzled, but gains in technology shares kept the Nasdaq in the positive territory.

U.S. stocks have been on a tear since Donald Trump's surprise victory in U.S. election. The Dow has closed higher for seven days, with the last four at record levels.

But the rally has ebbed as investors look for more clarity regarding his policies, while bracing for higher interest rates.

Trump's plans to cut taxes and raise infrastructure spending would boost economic activity, while his proposal to impose tariffs on cheap imports would likely drive inflation higher.

That prospect has given rise to expectations that the Federal Reserve would raise interest rates faster than anticipated, boosting the dollar index to a 14-year high.

The Fed will hike rates in December, barring any major shocks, policymaker James Bullard said. Traders are pricing in an 81 percent chance that the central bank will raise rates next month, according to Thomson Reuters data.

"We've seen markets rally sharply since the election and now its time for a very reasonable reassessment of what's going on. 'Have we gone too far too fast?' This is a bit of a reality check," said Brad McMillan, chief investment officer at Commonwealth Financial.

"At this point, a December rate hike is baked in. It would require something pretty exceptional for the Fed not to hike."

Despite the recent pullback, technical analysts say they expect the S&P 500 to hit a record high in the near future.

"Short-term overbought conditions could generate consolidation in the days ahead, but we expect the SPX to ultimately follow the Dow Jones Industrial Average and Russell 2000 Index to new highs," Katie Stockton, chief technical strategist at BTIG, said in a note.

At 12:38 p.m. ET (1738 GMT) the Dow Jones Industrial Average was down 72.86 points, or 0.39 percent, at 18,850.2.

The S&P 500 was down 5.25 points, or 0.24 percent, at 2,175.14.

The Nasdaq Composite was up 20.54 points, or 0.39 percent, at 5,296.16.

Eight of the 11 major S&P 500 sectors were lower, with the financial index's 1.43 percent drop leading the decliners.

The sector has gained 10.9 percent since the election on Nov. 8 – the biggest among the S&P sectors and well above the S&P's 1.9 percent gain and the Dow's 3.2 percent rise.

"Investors should book gains and wait for more evidence that the structural improvement in macro trends and regulations will materialize", brokerage Baird said of the rally in bank stocks.

JPMorgan's 2.3 percent fall weighed the most on the sector.

The S&P technology index rose 0.78 percent and led the gainers, helped by a rise in Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOGL).

Target jumped 6.5 percent after the retailer reported a higher-than-expected quarterly profit and raised its full-year forecast.

Declining issues outnumbered advancing ones on the NYSE by 1,517 to 1,392. On the Nasdaq, 1,441 issues rose and 1,306 fell.

© Reuters. Traders work on the floor of the NYSE

The S&P 500 index showed 12 new 52-week highs and two new lows, while the Nasdaq recorded 142 new highs and 19 new lows.

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