NEW YORK - The stock market closed lower Wednesday, weighted down by the same industry groups that had the biggest gains earlier in the year: dividend-paying utilities and makers of consumer staples.
Rising bond yields have been an important factor behind that shift.
The yield on the 10-year Treasury note is near the highest it’s been in 13 months after a sharp increase Tuesday. That’s giving investors who want steady income an alternative to dividend-rich stocks such as power utilities, consumer staples makers and phone companies. Investors piled into those stocks at the beginning of the year, when bond yields were close to historic lows.
More broadly, after this year’s powerful bull run - the Dow Jones industrial average is up 16.8 percent, the Standard & Poor’s 500 index 15.6 percent - investors may be running out of reasons to keep plowing money into the stock market, analysts said.
“There’s a vacuum of catalysts to continue to push [stocks] higher,” said Sam Stovall, chief U.S. equity strategist for S&P Capital IQ. Now, Stovall said, investors are wondering: “‘Well, should I take some profits and sit on the sidelines and then get back in?’”
Stovall said the S&P 500 has had a temporary pullback of at least 5 percent every year since the end of the World War II. That hasn’t happened yet in 2013.
The Dow closed down 106.59 points at 15,302.80, a loss of 0.7 percent. That decline matched its advance the day before, when it closed at a record high, the ninth time it has done so this month. The Dow was down as much as 179 points in late morning trading, then rose moderately in the afternoon.
The S&P 500 index was down 11.70 points to 1,648.36, also 0.7 percent. The Nasdaq composite lost 21.37 points to 3,467.52, or 0.6 percent.
Four stocks fell for every one that rose on the New York Stock Exchange. Consolidated volume was average at 3.5 billion shares.
The S&P 500 is headed for a seventh-consecutive month of increases, the longest winning streak since 2009. The Dow is on track to end higher for a sixth-straight month.
The powerful run-up in stock prices has been encouraged by the Federal Reserve. The central bank has been buying $85 billion of bonds each month in an effort to keep interest rates low and encourage borrowing, lending and investing. With rates low, investors have sought stocks as an alternative to bonds.
Minutes of a Fed meeting released last Wednesday brought news that some policymakers favored scaling back the bond purchases as early as next month, providing the economy picks up. That pushed stock markets to a decline last week, the first weekly drop in five. Those concerns have also led traders to sell bonds, pushing long term interest rates higher.
“At some point, interest rates will go up and that’s obviously having some impact on stocks,” said Erik Davidson, deputy chief investment officer for Wells Fargo Private Bank. “And you’re seeing it in the sectors that you would expect. The hardest sectors hit recently have been … the more dividend-driven stock sectors.”
Business, Pages 26 on 05/30/2013